Corporate Finance and Financial Management
Time value and valuation
Corporate finance rests on the time value of money. Master present and future value of single sums and annuities, and apply them to bond and stock valuation. Bond price equals the present value of coupon payments plus principal, discounted at the market rate - so prices fall when rates rise. Stock valuation uses dividend discount models or free cash flow; the Gordon growth model (D1 ÷ (r − g)) requires g less than r.
Risk, return, and capital budgeting
Understand the risk-return tradeoff, diversification, beta as systematic risk, and the capital asset pricing model: required return = risk-free rate + beta × market risk premium. In capital budgeting, apply net present value (preferred, since it measures value added), internal rate of return, payback, and profitability index. Know that NPV and IRR can conflict when project scale or timing differs; NPV wins.
Cost of capital and structure
Compute weighted average cost of capital using after-tax cost of debt and cost of equity. Understand capital structure theory at a conceptual level - leverage raises risk and expected return, and tax shields favor debt up to distress costs. Know dividend policy and working-capital management basics.
Traps and rule of thumb
Watch for: using pre-tax debt cost in WACC; forgetting that flotation costs raise required return; mixing nominal rates with real cash flows; and treating IRR as always superior to NPV.
Worked rule: WACC = (E/V × Re) + (D/V × Rd × (1 − tax)). If E = 60%, D = 40%, Re = 12%, Rd = 6%, tax = 25%, WACC = 7.2% + 1.8% = 9.0%.