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1、,Corporate Finance Ross Westerfield Jaffe,Sixth Edition,Chapter Outline,1.1 What is Corporate Finance? 1.2 Corporate Securities as Contingent Claims on Total Firm Value 1.3 The Corporate Firm 1.4 Goals of the Corporate Firm 1.5 Financial Markets 1.6 Outline of the Text,What is Corporate Finance?,Cas
2、e: SUPOR Corporate Finance addresses the following three questions: What long-term investments should the firm engage in? How can the firm raise the money for the required investments? How much short-term cash flow does a company need to pay its bills?,The Balance-Sheet Model of the Firm,The Balance
3、-Sheet Model of the Firm,Current Assets,Fixed Assets 1 Tangible 2 Intangible,Shareholders Equity,Current Liabilities,Long-Term Debt,What long-term investments should the firm engage in?,The Capital Budgeting Decision,The Balance-Sheet Model of the Firm,How can the firm raise the money for the requir
4、ed investments?,The Capital Structure Decision,Current Assets,Fixed Assets 1 Tangible 2 Intangible,Shareholders Equity,Current Liabilities,Long-Term Debt,The Balance-Sheet Model of the Firm,How much short-term cash flow does a company need to pay its bills?,The Net Working Capital Investment Decisio
5、n,Net Working Capital,Shareholders Equity,Current Liabilities,Long-Term Debt,Current Assets,Fixed Assets 1 Tangible 2 Intangible,Capital Structure,The value of the 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 viewe
6、d as how best to slice up a the pie.,If how you slice the pie affects the size of the pie, then the capital structure decision matters.,50% Debt,50% Equity,Hypothetical Organization Chart,The Financial Manager vs. Investors,To create value, the financial manager should: Try to make smart investment
7、decisions. Try to make smart financing decisions. To make a good Investment the investor should: Try to make a good decipher or decode a financial data and information Try to make an prediction of valuation Try to make a good investment of the stocks or Bonds and others. Try to monitor the company,C
8、ash flow from firm (C),The Firm and the Financial Markets,Taxes (D),Firm issues securities (A),Retained cash flows (F),Invests in assets (B),Dividends and debt payments (E),Current assets Fixed assets,Short-term debt Long-term debt Equity shares,Ultimately, the firm must be a cash generating activit
9、y.,The cash flows from the firm must exceed the cash flows from the financial markets.,1.2 Corporate Securities as Contingent Claims on Total Firm Value,The basic feature of a debt is that it is a promise by the borrowing firm to repay a fixed dollar amount of by a certain date. The shareholders cla
10、im on firm value is the residual amount that remains after the debtholders are paid. If the value of the firm is less than the amount promised to the debtholders, the shareholders get nothing.,What and Why is contingency?,In philosophy and logic, contingency is the status of propositions that are ne
11、ither true under every possible valuation (i.e. tautologies) nor false under every possible valuation (i.e. contradictions). A contingent proposition is neither necessarily true nor necessarily false. Propositions that are contingent may be so because they contain logical connectives which, along wi
12、th the truth value of any of its atomic parts, determine the truth value of the proposition. This is to say that the truth value of the proposition is contingent upon the truth values of the sentences which comprise it. Contingent propositions depend on the facts, whereas analytic propositions are t
13、rue without regard to any facts about which they speak.,Debt and Equity as Contingent Claims,$F,Debt holders are promised $F.,If the value of the firm is less than $F, they get the whatever the firm if worth.,If the value of the firm is more than $F, debt holders get a maximum of $F.,If the value of
14、 the firm is less than $F, share holders get nothing.,If the value of the firm is more than $F, share holders get everything above $F.,Algebraically, the bondholders claim is: Min$F,$X,Algebraically, the shareholders claim is: Max0,$X $F,Combined Payoffs to Debt and Equity,$F,Debt holders are promis
15、ed $F.,If the value of the firm is less than $F, the shareholders claim is: Max0,$X $F = $0 and the debt holders claim is Min$F,$X = $X. The sum of these is = $X,If the value of the firm is more than $F, the shareholders claim is: Max0,$X $F = $X $F and the debt holders claim is: Min$F,$X = $F. The
16、sum of these is = $X,1.3 The 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 Corporation Advantages and Disadvantages Liquidity and Marketability of Ownership Control Liability Continu
