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MBA pp 157–187Cite as

Introduction to Corporate Finance

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Part of the book series: Management and Industrial Engineering ((MINEN))

Abstract

This chapter provides a comprehensive overview of the main topics discussed in a first-year MBA class on corporate finance. One more motivation is not only to summarize them but also to provide some hands-on tools that can be applied in practice in relevant to corporate finance positions. Section 1 introduces the reader to the corporate finance field, the organizational structure of the firm, the conflicts between stakeholders, the financial management decisions as well as the financial markets. Section 2 refers to the utility of financial statements and provides the way to extract the necessary information from them. Later on, we discuss about the cost of capital and its fundamental importance in the capital structure of the firm. Finally, we present some tools for capital budgeting decisions and project valuation such as net present value, internal rate of return, and discounted payback period. Attention is also paid to the dividend policy of the firm and its consequences to the firm’s earnings. The chapter concludes by presenting some of the most important techniques in equity and business valuation such as free cash flow and discounted cash flow analyses.

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References

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Author information

Authors and Affiliations

  1. Georg-August-Universität Göttingen, Platz der Göttingen Sieben 3, 37073, Göttingen, Germany

    Leoni Eleni Oikonomikou

Authors
  1. Leoni Eleni Oikonomikou
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Corresponding author

Correspondence to Leoni Eleni Oikonomikou .

Editor information

Editors and Affiliations

  1. University of Minho, Braga, Portugal

    Carolina Machado

  2. Department of Mechanical Engineerin, University of Aveiro, Aveiro, Portugal

    J. Paulo Davim

Appendices

7   Multiple Choice Questions

  1. 1.

    In the CAPM formula, the risk-free rate is the compensation for the expected loss of the purchasing power.

    1. a.

      True

    2. b.

      False

  2. 2.

    The debt-to-equity ratio shows the profitability of the firm.

    1. a.

      True

    2. b.

      False

  3. 3.

    Which are the tools to evaluate the forecasting errors of the estimated NPV? Select from the following (more than one apply):

    1. a.

      Discounted payback period

    2. b.

      Simulation analysis

    3. c.

      Payout policy

    4. d.

      Scenario analysis

    5. e.

      Business valuation

    6. f.

      Break-even analysis

  4. 4.

    Leverage is referring to

    1. a.

      Company’s debt

    2. b.

      Company’s equity

    3. c.

      Both

  5. 5.

    Corporate finance is a field in finance that is dealing with capital budgeting, capital structure, and working capital management functions within a firm.

    1. a.

      True

    2. b.

      False

  6. 6.

    John decides to put 100 € in a bank account with interest rate 10 % per year. Which is the future value after 4 years:

    1. a.

      234.15 €

    2. b.

      139.23 €

    3. c.

      146.41 €

    4. d.

      187.35 €

  7. 7.

    The company ABC wants to raise €3 million in order to expand its business to other countries. Its corporate tax rate is 20 %. The yield to maturity of its bonds is 6 %.

    Calculate the cost of debt for that company.

    1. a.

      2.1 %

    2. b.

      4.8 %

    3. c.

      5.3 %

  8. 8.

    Which of the following consists a potential solution to resolve a shareholders–managers conflict in favor of shareholders?

    1. a.

      give incentives to the current manager to expand the business activities

    2. b.

      increase managerial compensation

    3. c.

      do not do anything

  9. 9.

    Cash dividends are considered as claims for the shareholders.

    1. a.

      True

    2. b.

      False

  10. 10.

    The cost of capital accounts for the interactions between corporations and investors in the market.

    1. a.

      True

    2. b.

      False

Multiple Choice Answers

  1. 1.

    a,

  2. 2.

    b,

  3. 3.

    b., d., f.,

  4. 4.

    a,

  5. 5.

    a,

  6. 6.

    c,

  7. 7.

    b,

  8. 8.

    c,

  9. 9.

    b,

  10. 10.

    a.

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© 2016 Springer International Publishing Switzerland

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Oikonomikou, L.E. (2016). Introduction to Corporate Finance. In: Machado, C., Davim, J. (eds) MBA. Management and Industrial Engineering. Springer, Cham. https://doi.org/10.1007/978-3-319-28281-7_6

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  • DOI: https://doi.org/10.1007/978-3-319-28281-7_6

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-28279-4

  • Online ISBN: 978-3-319-28281-7

  • eBook Packages: EngineeringEngineering (R0)

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