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    Session 1

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    shubham singhal
    This document provides an overview of an online corporate finance course. [1] It outlines the course structure, assignments, and exams. [2] The first session introduces concepts in corporate finance including the origin and functions of corporate finance as well as the goals and roles of different stakeholders. [3] The second session covers the time value of money concept and methods for calculating future and present values using simple and compound interest as well as time value tables.

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    Session 1

    Uploaded by

    shubham singhal
    49 views28 pages
    This document provides an overview of an online corporate finance course. [1] It outlines the course structure, assignments, and exams. [2] The first session introduces concepts in corporate finance including the origin and functions of corporate finance as well as the goals and roles of different stakeholders. [3] The second session covers the time value of money concept and methods for calculating future and present values using simple and compound interest as well as time value tables.

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    This document provides an overview of an online corporate finance course. [1] It outlines the course structure, assignments, and exams. [2] The first session introduces concepts in corporate finance including the origin and functions of corporate finance as well as the goals and roles of different stakeholders. [3] The second session covers the time value of money concept and methods for calculating future and present values using simple and compound interest as well as time value tables.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    49 views28 pages

    Session 1

    Uploaded by

    shubham singhal
    This document provides an overview of an online corporate finance course. [1] It outlines the course structure, assignments, and exams. [2] The first session introduces concepts in corporate finance including the origin and functions of corporate finance as well as the goals and roles of different stakeholders. [3] The second session covers the time value of money concept and methods for calculating future and present values using simple and compound interest as well as time value tables.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 28

    Session 1

    Corporate Finance

    - Prof. Gayatri Galvankar


    Overview of the Course Plan
    Overview
    Structure:
    Online Sessions – 9 nos.
    Assignments – 30%
    Term End Exam (TEE) – 70%

    Assignments (30 Marks each)


    Case-based and application-oriented
    2 questions of 10 marks and 2 questions of 5 marks each

    Term End Examination (TEE)


    Composite Pattern - Multiple Choice Questions (MCQs) and Descriptive
    questions (As applicable).
    Session 1

    Introduction to Corporate Finance


    Origin of Corporate Finance

    • What is Finance?
    Anything to do with Money

    • Types – Personal, Public, Corporate

    • Origin of Corporate Finance


    • Business Finance
    • Profit Maximisation
    • Complexities – Interconnections
    • Dynamism of the environment
    Need
    Functions of Finance
    • Financing decisions – Best mix of funding i.e. the best
    capital structure, various ways of obtaining long and short-
    term funds etc.
    • Investment decisions – Allocation of funds to investment
    activities, managing ongoing investments efficiently and
    effectively etc.
    • Liquidity decisions – Amount of cash & cash equivalents to
    be kept
    • Dividend decisions – Earnings distribution, share splits etc.
    • Reporting, Monitoring and Controlling of Funds related
    decisions- Financial planning and fund utilization
    Functions of a Finance Manager

    • Forecasting and planning

    • Analysing and evaluating the investment activities

    • Coordinating and controlling

    • Understanding the finance market

    • Understanding risk management

    • Evaluating performance measurement


    Goals of a Firm
    • FINANCIAL GOALS
    • Setting achievable target market share
    • Sustaining and maintaining the business position
    • Maintaining financial liquidity and solvency
    • Maximising profit
    • Maximising shareholders’ wealth

    • NON-FINANCIAL GOALS
    • Enhancing employee satisfaction and welfare
    • Enhancing management satisfaction.
    • Prioritising social objective
    • Rendering quality service to customers
    Finance and Other Functions
    Key Concepts
    • Management vs Shareholders
    – Role holders to run or manage the business
    – Owners

    • Agency Costs
    – Costs incurred for controlling and monitoring the
    Management
    – Auditing
    – Maintaining structures, job profile, roles etc.
    Session 2

    Time Value of Money


    Meaning

    “Money Today Is Worth More Than Money


    Received Tomorrow”

    As:

     Revenue generating capacity


     Inflation
     Opportunity Cost

    INTEREST
    Interest Calculation Approaches

     Simple Interest
    Interest on Principal

     Compound Interest
    Interest on Principal + Interest
    Simple Interest Approach
    Mr X invests Rs 3,00,000 at 10% simple interest per
    annum. The following table shows the state of the
    investment, year by year for 5 years.
    Compound Interest Approach
    Mr X invests Rs 3,00,000 at 10% Compound interest per
    annum. The following table shows the state of the
    investment, year by year for 5 years.

    Interest
    Earned Cumulative
    Year Principal (@10%) Amount
    1 3,00,000 30,000 3,30,000
    2 3,30,000 33,000 3,63,000
    3 3,63,000 36,300 3,99,300
    4 3,99,300 39,930 4,39,230
    5 4,39,230 43,923 4,83,153
    Comparative table for Simple vs compound interest on
    Rs. 1000 at an interest of 10%
    Future Value of Money

    Future Value = Present Value (1 + Rate of Interest)

    FV = Po (1+r)

    Future Value = Present Value (1 + Rate of Interest) ^ No.


    of years

    FV = PV (1+i)^n
    Future Value of Money
    Example:

    Investment - Rs 1000
    Interest Rate - 10%
    What is the Future value after 2 years?

    FV = PV (1+ i ) ^ n
    =1000 (1 + .1)^2 = 1000 * 1.21
    = 1210
    Relationship of Interest Rate, Time and Future Value

    1. When interest rate, i, increases, future value FV increases.


    2. When number of years, n, increases, future value FV increases.
    3. When the principal, PV or P0, increases, future value FV increases.

    Year Interest @5% Interest @10% Interest @15%

    1 50 100 150

    2 53 110 173

    3 55 121 198

    4 58 133 228

    5 61 146 262
    Present Value of Money

    Present Value = Future Value / (1 + Rate of Interest) ^ No.


    of years

    PV = FV / (1+i)^n

    Example:

    Future Value after 2 years- Rs 1210


    Interest Rate - 10%
    What is the Present value?

    PV = FV / (1+ i ) ^ n
    = 1210 / (1 + 0.1)^2 = 1210 / 1.21
    = 1000
    Relationship of Interest Rate, Time and Present Value

    1. When interest rate, r, decreases, present value PV increases.


    2. When number of years, n, decreases, present value PV increases.
    3. When FV increases, present value of the principal PV increases.

    Interest Interest Interest


    Year @5% @10% @15%
    1 952 909 870
    2 907 826 756
    3 864 751 658
    4 823 683 572
    5 784 621 497
    Time Value Tables
    Time Value Tables
    Time Value Tables

    With use of Time Value Tables

    FV = PV (FVIF i,n)

    PV = FV (PVIF i,n)
    Time Value Tables

    Examples:
    1. Calculate the present value of INR 50,000 received after five
    years discounted at 10%.

    PV = FV(PVIF10%,5)
    = 50,000 × 0.621
    = INR 31,050

    2. Calculate the future value of INR 31,050 after five years


    compounded at 10%.

    FV = PV (FVIF 10%,5)
    = 31,050 * 1.611
    = 50,000
    To Sum up

    • What & Why of Finance


    • Corporate Finance Introduction
    • Functions of Finance / Finance Manager

    • Time Value of Money


    • Interest – Simple & Compound
    • Future Value & Present Value
    • Time Value Tables

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