26 Jan

> IPO - Why go for it?

> Controlled Equity Auction
> Private PLacement .vs. Going Public (Marketing and Trust is increased when you go
Public)
+ Diversified Holding
+ Floatation Cost
+ Disclosures & Regulations (Management Discipline)
+ Debt (Managing Bank can discipline)
> Launch of IPO (Strategy> Investment Banker > Advisory, Red Herring Prospectus >
Book Building > > League table >

> Debt Syndication

> Firm commitment - Commit a price and take rpofit over the risk of setting price
(underwriting)
> Best efforts - We charge our service only, not take share of the profit or loss
> Green Shoe Option - Investment Banker sells more than the shares at the said
price by excersing the GSO then it can buyback the shares if post-IPO price goes
down creates force to prop the price up (Post-IPO Stabilization); Time Period is
around 15-30 days
> IPO > Exchange > Seasoned Equity Offering > ...
> Short Selling (Borrow, Sell Later) / Naked Short Selling (No Buy/Borrow, Sell
later atm purchase)
> Explicit Cost of Trading (Brokerage
> Implicit Cost of Trading (Liquidity Based Measure)
> Bid-Ask Spread (Illiquid have higher round trip transaction cost)
> Algorithimic Trading ()
> Margin Trading System (Borrow from Lenders and then play on the stock in Trading)
> In Long Position, Mark-To-Market Losses (Initial Margin, Maintenace Margin) - You
will get a Margin Call if your Maintenace Margin is lower than Set Value, your
assets would be sold to recover the value or you can top if off to maintain Margin

30 Jan
Short Sale
> Short Sale (Regulated by SLB) - When you expect the price to go down
> Naked Short sale is not allowed in Pakistan
> Volatility is an Asset (Profitability) for Derivatives and related Products
(Options, Swaps...)
> Options price go up with more volatility
> Margin Call Hit will happen when price condition is (1500-P*100)/(P*100) = 30%
> Contract For Differences: For 1 dollar of your own, you can take bet on like 400
dollars
> Should have Reserve Money so that you can keep your Position Open

> Pakistani Issues: Insider Trading and Front Running (Investment, Bodie Kane &
Marcus)
> Discount Rate (Fundamentals of Corporate Finance by Ross) - Revision
> Hurdle Rate is the overcompassing term for Interest Rate where you can use
another Interest Rate for Project Return Valuation (like Historic Return from
Projects compared to Cost of Capital from Banks)
> WACC is for Firm valuation
> RRR (Re) is for Equity Valuation
> CAPM (Chapter 2)

6 Jan
> CAPM tells you how much return you should get for your investment
> Efficient Market Hypothesis
> If you don't want any risk you will get the risk-free rate
> **Beta measures the systematic risk in the market (Systematic Risk for which you
cannot diversify)
> *CAPM note: You will get an a risk-free return; if you go into equity market you
will get an extra return; then based on systematic risk you inflate or defalte beta
> Risk types: Default / Market / Liquidity
> T-Bill has reinvestment risk
>

9 Jan
> For calculation of 'Beta' @ no data; Like in case of Change in Business Mix
> Beta is a function of Leverage and Business Mix
> Discount Rate (R) = Rfr (Govt. Bonds) + beta * MRP (Market Price)
> Beta is Company Specific based on covariance, understand the assumptions (Time
Period, Frequency; Market Return Policy)
> Pure Play Approach (Get Comparables; Calculate Equity Rates of Comparables; De-
lever Equity Rates to get Asset Betas; Average Asset Betas; Re-lever with the
Company)
> Bottoms-Up Approach (Calculate Asset Betas of Divisions using Pure Play Approach;
Calculate weighte average; Re-lever using Corporation's Debt Equity Ratio)
> Equity Beta (Levered Beta) = Asset Beta (1 + Debt/Equity)
> Now, use the Average Asset Beta to obtain the industry value then leverage it
using specfic Company's Debt/Equity Ratio to come to the COmpany's Beta (CAPM
Model)
> As Company matures its Systemic Risk reduces
> To find comparable companies in calculation of data , if sufficient companies
aren't present so either you go find the similar companies at regional level or
step backward/forward in supply chain to find the effect related industry beta on
your industry change

> Fundamental Price of Stock is an approx. function of Cash flows and Riskiness
> Cash Flows are an approx. function of Management Decisions, Costs, General Market
COordination)
> Managment Decisions can be Operational and Financial
> P/E is reflective of Company Value
> Damodaran Disney Example
> Implied Equity Risk Premium (forward looking rate)
> Relative Equity Risk Premium (Benckmark the Risk to a Developed Market and then
scale it with Volatility)
>

13 Feb
> Solved Example of Disney
> Arnitrage Pricing Model: Systematic risk in essence shall be broken down into
respective risks that effect your indiviual Company/Industry
> Central Back Interest Change is a Systematic Risk
> FACTOR ANALYSIS: Identify Patters
> Macroeconomic Multifactor Models
> Proxy Models: Fama-French Model (Emperical relation in Book to Price Ratio;
Market Capitalization Bigger results in lower returns)
> Weights are always based on Market figures
> Cost of Debt shall be calculated on Current Basis not Historical

13 Mar
> CF0 is taken as given. This is the biggest mistake
> *TTM: Trailing Twelve Months

> FCFE = NI - (Capex + Debt)-Change in Net Working Capital

> FCFF = OI(1-t) - (Capex + Debt) - Change in Non-Cash Working Capital + (new Debt
Issued - Debt repaid)
17 Apr
> Benefits of Debt Financing
+ Cashflow Restriction
+ Increase ROE
+ Risk might Incur
+ Invest equity somewhere else
+ Cost of Capital reduction
+ Tax Benefit

> Capital Structure decisions are not important for Shareholders / Company
> Capital Strucure Theory
+ Static Theory of Capital Structure (Levered Value = Unlevered Value + PV of Tax
Sheild - Cost of Bankrupcy)
+ Pecking Order Theory of Capital Structure (Consider ease of raising Capital:
Retained Earnings > Debt > Capital Pricing)
+ Signalling Theory (Company uses Leverae to pass signals to the market)

> Liquidation Procedures (Chap. 11 reorganisation / Chap.7?)

4 Apr
> Value of Levered firm (APV) = Value of Unlevered Firm + Value of Tax Sheild +
Expected Cash of Debt