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1、Introduction to Corporate Finance,Key Concepts and Skills,Know the basic types of financial management decisions and the role of the Financial Manager Know the financial implications of the various forms of business organization Know the goal of financial management Understand the conflicts of inter
2、est that can arise between owners and managers Understand the various types of financial markets,Chapter Outline,1.1 What is Corporate Finance? 1.2 The Corporate Firm 1.3 The Goal of Financial Management 1.4 The Agency Problem and Control of the Corporation 1.5 Financial Markets,1.1 What is Corporat
3、e Finance?,Corporate Finance addresses the following three questions: What long-term investments should the firm choose? How should the firm raise funds for the selected investments? How should short-term assets be managed and financed?,Balance Sheet Model of the Firm,The Capital Budgeting Decision,
4、Current Assets,Fixed Assets 1 Tangible 2 Intangible,Shareholders Equity,Current Liabilities,Long-Term Debt,What long-term investments should the firm choose?,The Capital Structure Decision,How should the firm raise funds for the selected investments?,Current Assets,Fixed Assets 1 Tangible 2 Intangib
5、le,Shareholders Equity,Current Liabilities,Long-Term Debt,Short-Term Asset Management,How should short-term assets be managed and financed?,Net Working Capital,Shareholders Equity,Current Liabilities,Long-Term Debt,Current Assets,Fixed Assets 1 Tangible 2 Intangible,Capital Structure,The value of th
6、e firm can be thought of as a pie.,The goal of the manager is to increase the size of the pie.,The Capital Structure decision can be viewed as how best to slice the pie.,If how you slice the pie affects the size of the pie, then the capital structure decision matters.,50% Debt,50% Equity,The Financi
7、al Manager,The Financial Managers primary goal is to increase the value of the firm by: Selecting value creating projects Making smart financing decisions,Hypothetical Organization Chart,Chairman of the Board and Chief Executive Officer (CEO),President and Chief Operating Officer (COO),Vice Presiden
8、t and Chief Financial Officer (CFO),Treasurer,Controller,Cash Manager,Capital Expenditures,Credit Manager,Financial Planning,Tax Manager,Financial Accounting,Cost Accounting,Data Processing,Board of Directors,Cash flowfrom firm (C),The Firm and the Financial Markets,Taxes (D),Retained cash flows (F)
9、,Investsin assets(B),Dividends anddebt payments (E),Current assetsFixed assets,Short-term debt Long-term debt Equity shares,Ultimately, the firm must be a cash generating activity.,The cash flows from the firm must exceed the cash flows from the financial markets.,Firm issues securities (A),1.2 The
10、Corporate Firm,The corporate form of business is the standard method for solving the problems encountered in raising large amounts of cash. However, businesses can take other forms.,Forms of Business Organization,The Sole Proprietorship The Partnership General Partnership Limited Partnership The Cor
11、poration,A Comparison,1.3 The Goal of Financial Management,What is the correct goal? Maximize profit? Minimize costs? Maximize market share? Maximize shareholder wealth?,1.4 The Agency Problem,Agency relationship Principal hires an agent to represent his/her interest Stockholders (principals) hire m
12、anagers (agents) to run the company Agency problem Conflict of interest between principal and agent,Managerial Goals,Managerial goals may be different from shareholder goals Expensive perquisites Survival Independence Increased growth and size are not necessarily equivalent to increased shareholder
13、wealth,Managing Managers,Managerial compensation Incentives can be used to align management and stockholder interests The incentives need to be structured carefully to make sure that they achieve their intended goal Corporate control The threat of a takeover may result in better management Other sta
14、keholders,1.5 Financial Markets,Primary Market Issuance of a security for the first time Secondary Markets Buying and selling of previously issued securities Securities may be traded in either a dealer or auction market NYSE NASDAQ,Financial Markets,Firms,Investors,Secondary Market,money,securities,
15、Sue,Bob,Stocks and Bonds,Money,Primary Market,Quick Quiz,What are the three basic questions Financial Managers must answer? What are the three major forms of business organization? What is the goal of financial management? What are agency problems, and why do they exist within a corporation? What is the difference between a primary market and a secondary market?,
