corporate finance.ppt

7/27/2019 Corporate Finance.ppt

1/69

corporate finance

Presented by: Aditya Ahluwaliawww.finstructor.in


2/69

Capital Budgeting

The process of identifying and evaluating projectswhere the cash flows will be received over a period

longer than a year is called Capital Budgeting.

1. Idea Creation.2. Analyzing project proposals.

3. Create the firm-wide capital budget.

4. Monitoring decisions and conducting a post-audit.


3/69

Capital Budgeting Projects

Replacement projects to maintain the business.

Replacement projects for cost reduction.

Expansion projects.

New product or market development.

Mandatory projects.

Pet management projects.


4/69

Capital budgetingKey Principles

Decisions are based on cash flows, notaccounting income

Cash flows are based on opportunity costs

Timing of cash flows is important

Cash flows are analyzed on an after tax basis

Financing costs are reflected in the projects

required rate of return


5/69

Independent Vs Mutually Exclusive projects

Project Sequencing

Unlimited funds v/s Capital rationing


6/69

NPV & IRR


7/69

Payback period


8/69


9/69

Discounted Payback Method


10/69


11/69

Profitability Index


12/69

Profitability Index


13/69


14/69

NPV Profile


15/69

NPVAdvantages & Disadvantages

Advantages> Direct measure of expected increase in firm value

> Theoretically the best method

Disadvantages> Does not include any consideration of the size of

the project


16/69

IRRAdvantages & Disadvantages

Advantages> Measures profitability as a percentage, showing

return on each dollar invested

> Provides information on the margin of safety,which NPV does not

Disadvantages

>

Conflicting rankings for mutually exclusiveprojects

> Multiple IRRs and no - IRR


17/69

Conflicting Decisions


18/69

Conflicting Decisions

Difference in sizes of projects (initial outlay)

NPV implicitly assumes reinvestment at

discount rate

IRR implicitly assumes reinvestment at IRR

Multiple IRRs and no IRR


19/69


20/69


21/69

WACC


22/69

WACC


23/69


24/69


25/69

Target Capital Structure


26/69

Optimal Capital Budget


27/69


28/69


29/69


30/69


31/69

Cost of Equity


32/69


33/69

Cost of Equity


34/69


35/69


36/69


37/69

Project Beta


38/69


39/69


40/69

Issues with Beta


41/69

Country Risk Premium


42/69


43/69


44/69

Marginal Cost of Capital


45/69


46/69


47/69

Fl i C


48/69

Floatation Costs


49/69


50/69

W ki C it l M t


51/69

Working Capital Management


52/69


53/69

C h M t


54/69

Cash Management


55/69


56/69

`


57/69


58/69


59/69

Inventory Management Accounts Payable Management


60/69


61/69


62/69

Short term sources of funding


63/69

Short term sources of funding

Uncommitted Line of Credit Committed (Regular) Line of Credit

(Overdraft)

Revolving Line of Credit

Collaterals, pledging, blanket lien

Bankers acceptances

FactoringThe factor (buyer) takes on the

responsibility for the receivables


64/69

NBFCs Commercial Paper

Financial Statement Analysis


65/69

Financial Statement Analysis


66/69


67/69


68/69


69/69

corporate finance.ppt

Documents