Ac.F100 Managerial Finance presentation from Lancaster University Management School

Lancaster University Management School

Ac.F100 Managerial Finance Lent, 2025

Dr Alexey Akimov
Senior Lecturer in Finance
Department of Accounting & Finance
Lancaster University Management School

1Lancaster University
Management School

Course objectives

• to describe basic theories and practices of financial decision making
• to equip you with basic tools and techniques essential to make informed
  financial decisions
• to provide the basis for advanced courses in finance

. The main focus of the course is on valuation of both real and financial assets

2Lancaster University
Management School

Topics to be covered in Ac.F100 in Lent

• Introduction to Capital Markets

. Time value of money and basic financial maths
. Loans and Interest Rates
. Types of financial assets and their valuation methods

• Project evaluation criteria and capital budgeting

. Theory of risk, return and the cost of capital

3Lancaster University
Management School

Course administration

• Lectures

. Monday and Tuesday are lecture sessions and Wednesday is a practical
session

• Workshops

· Same day/time as last term
· Workshop exercises will be made available on Moodle
· Prepare answers to the questions assigned for the workshop
. Be there and ask questions

• Weekly quizzes on Moodle

· Entry-level practice questions

4Lancaster University
Management School

Office hours

. You are welcome to see me in my office (Charles Carter Building, Room C34)
every Thursday 12:00-14:00

• Drop-in or by appointment
• Email: a.akimov@lancaster.ac.uk

5Lancaster University
Management School

Assessment

• In-person MCQ test in week 16 (2.5% of ACF100 mark)

. Ensure you are available for the test - Thursday 20th February 2025.

• In-person end of term test in week 20 (10% of ACF100 mark)

. Ensure you are available for the test - Thursday 20th March 2025.

• Preparation for workshops

. 2% of total course mark for collected-in preparation marked as of a
satisfactory standard.

6Lancaster University
Management School

Required reading

. Ross, Westerfield, & Jordan (2019) Essentials of Corporate Finance, 10th
edition (or newer 11th edition), McGraw-Hill.

• Alternative texts:

· Berk & DeMarzo (2017) Corporate Finance, 4th edition (or newer
edition), Pearson Education.

• Supplementary reading:

· http://essentialsofcorporatefinance.blogspot.co.uk
· Other readings will be provided via Resource List

7Mc
Graw
Hill
URL:
https://www.mheducation.co.uk/essentials-of-
corporate-finance-ise-9781265103514-emea-
group

STEP ONE

• SCAN QR CODE WITH YOUR PHONE CAMERA

STEP TWO

• CLICK PURCHASE OPTIONS & ADD YOUR
  CHOICE TO CART - SIGN IN, OR GUEST
  CHECKOUT

STEP THREE

. SELECT YOUR PAYMENT METHOD AND APPLY
DISCOUNT CODE. ENTER YOUR GIVEN CODE

STEP FOUR

• COMPLETE PURCHASE, EMAIL
  CONFIRMATION WILL BE RECEIVED

This International Student Edition is for use outside of the U.S.
Ross | Westerfield | Jordan
Essentials of
Corporate Finance
Eldivenm Ec tích
Mc
Graw
Ross Essentials of Corporate
Finance 11e
Mc
Graw
Hill
30% discount code:
unibooks30Virtual Learning Environment
(Moodle)
Lancaster University
Management School

. You can find all the relevant information about the course, including:

• Lecture slides
• Solutions to workshop questions
• Important announcements, etc.
  on Moodle course page

9Lancaster University
Management School

What we expect from you - lectures

• Attendance is compulsory
• Turn up on time

. Participate in problems and questions taking place during lectures and
practicals

• Difficult to ask questions during lectures to clarify points, so use
  workshops (or office hours) to ask more detailed questions

. Don't chat - respect other attendees who are listening

10Lancaster University
Management School

What we expect from you - workshops

• You must prepare for workshops - you are given problems to prepare in advance

. Preparation is collected in at least twice this term without notice

• You must participate in workshops by answering questions and joining in
  discussions
• Workshop attendance is compulsory and strictly monitored:

. Persistent non-attendance can affect visas for international students and
permission to remain on the degree programme for all students
. You must let Luke Brown know of any illness or other reason for
nonattendance in advance.

11Lancaster University
Management School

What you can expect from us

• Regular contact hours
• Support via email, Teams and Moodle

. Workshops and practical sessions to help you practise techniques and work with
fellow students on problems to allow you to focus on areas you find difficult
. Other support with writing and maths at LUMS as well as via academic tutors

• Feedback on your work

12Lancaster University
Management School

Introduction to Finance

Week 11

13Lancaster University
Management School

Accounting and Finance

• accounting statements provide a record of the past
  $

VS
Finance
Accounting

• finance is the study of making choices
• comparisons of expected costs and expected benefits
• expectations are based on past experience
• two basic principles of finance

. time: a dollar today is worth more than a dollar tomorrow
· uncertainty (risk): a safe dollar is worth more than a risky one

14Lancaster University
Management School
36.00
700 25
F25.00
Investments
EUR
+2.31
Euro
GBP
-0.45
Pound sterlin
€
JPY
+3.16
Japanese yen
$
AUD
+2.72
Canadian do
C$ CAD
Swedish kr
-4.42
Swiss fra
kr
SEK
+1.99
Norwegian
-1.05
South Ko
cian
International finance
15

Four main areas of finance

Corporate finance
SI
Financial institutions
+
-1.15
AustralianLancaster University
Management School

Corporate finance

• to undertake financial decisions for corporations
• what long-term investments should the firm take on?

. where to get long-term financing to pay for the investments?

• how to manage the everyday financial activities of the firm?
• job opportunities

· financial director/CFO, consultant

16Lancaster University
Management School

Investments

. work with financial assets such as stocks and bonds
. how to determine the correct price of stocks and bonds

• how to calculate risk and return

. how to allocate money into different financial assets

• job opportunities

· stockbroker, financial advisor, portfolio manager, security analyst

17Lancaster University
Management School

Financial Institutions

. companies that specialize in financial matters

• banks - commercial bank, investment bank, and central bank
• insurance companies
• job opportunities

· banker, actuary, underwriter

18Lancaster University
Management School

International Finance

• an area of specialisation within each of the areas discussed so far
• overseas operations
• investing in foreign securities
• what do we need to know?

· need to be familiar with exchange rates and political risk
· need to understand foreign culture and customs

19Finance
Investment
Corporate
Finance
Financial
Institutions
International
Finance
Financial
Management
Decisions
Forms of
Business
Organization
Capital
Budgeting
Capital
Structure
Working
Capital
Management
Sole
Proprietorship
Partnership
Corporation
Agency
Problem
Financial
MarketsLancaster University
Management School

Forms of business organisation

• sole proprietorship

. owned by one person who is the manager

• unlimited liability
• partnership

· owned by two or more owners (limited or unlimited liability)
. ownership is combined with management
· legal contract of partnership required
. examples: many legal and accounting firms

• corporation/firm

. many owners (limited liability)
. ownership and control may be separate

21Lancaster University
Management School

Unlimited/Limited Liability

• unlimited liability

· investors are personally responsible for all business debts

• limited liability

. the most an investor can lose is the amount she initially invested

• Example:

. you have personal wealth of £1,000
· you become a (50%) general partner for investing £100 in firm A
. you become a shareholder for buying 1 share in a corporation B at £100
. both firms borrow debt £2,000
. what will happen to your wealth if any of these firms fail and cannot repay
the debt using firms' assets?

22Payoff to debt and equity
holders of a corporation
Lancaster University
Management School

• debt holders are promised £F
  . if the value of the firm is less than
  £F, they get whatever the firm is
  worth

· algebraically, the bondholder's
claim is min [F, X]
Payoff to
debt holders
If the value of the firm
is more than £F, debt
holders get a
maximum of £F.
£F
-
£F
Value of the firm (X)
23Payoff to debt and equity
holders of a corporation
Lancaster University
Management School

. if the value of the firm is more
than £F, shareholders get
everything above £F

• algebraically, the shareholder's
  claim is max[0, X - F]

Payoff to
shareholders
If the value of the
firm is less than £F.
share holders get
nothing.
£F
Value of the firm (X)
24Separation of ownership and
control for shareholders
Lancaster University
Management School

Board of Directors
Management
Debtholders
Debt
Assets
Shareholders
Equity
25Lancaster University
Management School

Who owns a corporation?

• who is an owner?

· provides fund
· takes the business risk
. does not have any claim to pre-specified payment

• who has a financial stake in a corporation?

· those who do not provide finance
· employees, customers, suppliers, government

• debt-holders (creditors)

· entitled to principal + interest

• shareholders

· will receive dividends + capital gains
. they are residual claimants

26Internal organisational chart
for a corporation
Lancaster University
Management School

Board of Directors
Chairman of the Board and
Chief Executive Officer (CEO)
President and Chief
Operations Officer (COO)
Vice President
Marketing
Vice President
Finance (CFO)
Vice President
Production
Treasurer
Controller
27Finance
Investment
Corporate
Finance
Financial
Institutions
International
Finance
Financial
Management
Decisions
Forms of
Business
Organization
Capital
Budgeting
Capital
Structure
Working
Capital
Management
Sole
Proprietorship
Partnership
Corporation
Agency
Problem
Financial
Markets