Introduction to Corporate Finance

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.