Chap-01-Lecture-Summer_16_Ross_10 India Yu.pptx

8/16/2019 Chap-01-Lecture-Summer_16_Ross_10 India Yu.pptx

1/22

BUAD-6200 || Corporate Finance || Chapter 1 University of Toledo || College of Bsiness and !nnovation

Lecture- (Chapter-01)

Introduction to Corporate Finance

Chapter Outline

1.1 What is Corporate Finance?

1.2 The Corporate Firm1.3 The Importance of Cash Flows

1.4 The Goals of Financial Management

1.5 The Agency Problem and Control of the Corporation

1.6 Regulation

BUAD-6200: Corporate Finance

1


2/22

CorporateFinance Total FirmValue CorporateFirm FinancialMarket

University of Toledo || College of Bsiness and !nnovationBUAD-6200 || Corporate Finance || Chapter 1

Key Concept and !"i##

" Know the basic types of nancial management decisionsand the role of the Financial Manager

" Know the nancial implications of the various forms ofbusiness organiation

" Know the goal of nancial management

" !nderstand the con"icts of interest that can arise betweenowners and managers

" !nderstand the various types of nancial markets

#


3/22


University of Toledo || College of Bsiness and !nnovationBUAD-6200 || Corporate Finance || Chapter 1

$hat i Corporate Finance%

Corporate Finance addresses the followingthree &uetion$

" %hat long&term investments should the rm engagein'

" (ow can the rm raise the money for the re)uiredinvestments'

" (ow much short&term cash "ow does a company needto pay its bills'

*


4/22


University of Toledo || College of Bsiness and !nnovationBUAD6200 || Corporate Finance || Chapter 1

'he Ba#ance-!heet ode# o the Fir*

Total Value of Assets

+

Current Assets

Fixed Assets

1 Tangible

2 Intangible Shareholder

s’ Equity

Current

Liabilities

Long-Term

ebt

Total Firm Value to Investors


5/22




,

Current Assets

Fixed Assets

1 Tangible

2 IntangibleShareholders’

Equity

Current

Liabilities

Long-Term

ebtWhat long-terminvestments

should the firmengage in?

The Capital Budgeting Decision


6/22




-

The Capital Structure Decision

o! can the firm

raise the mone"

for the re#uired

investments?

Current Assets

Fixed Assets

1 Tangible

2 Intangible Shareholders’

Equity

Current

Liabilities

Long-Term

ebt


7/22




.

The $et Wor%ing Capital Investment Decision

!et

"or#ing

Ca$ital

o! much short-termcash flo! does a

compan" need to pa"its &ills?

Current

Liabilities

Long-Term

ebt

Current Assets

Fixed Assets

1 Tangible

2 IntangibleShareholders’

Equity


8/22



Capita# !tructure

/

%&'

ebt

%&'

Equity

2%'

ebt

(%'

Equity

The )alue o* the *irm +an bethought o* as a $ie,

The goal o* the manager is to

in+rease the sie o* the $ie,

The Ca$ital Stru+ture de+ision +an

be )ie.ed as ho. best to sli+e u$ a

the $ie,

I* ho. you sli+e the $ie a**e+ts the sie o* the $ie/ then the

+a$ital stru+ture de+ision matters,

(&' ebt

0&'

Equity


9/22



+ypothetica# ,rani.ation Chart

0

Chairman of the Board andChief Executive Officer (CEO)

Board of Directors

President and ChiefOperating Officer (COO)

Vice President andChief Financial Officer (CFO)

Treasurer Controller

Cash anager

Capital Expenditures

Credit anager

Financial Planning

Tax anager

Financial !ccounting

Cost !ccounting

Data Processing


10/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


'he Financia# anaer

To create value the nancial manager should$" Try to make smart investment decisions2

" Try to make smart nancing decisions2

13


11/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


Cash flo#fro$ fir$ (C)

'he I*portance o Cah F#o/

11

T a % e s

( D )

Fir$

&overn$ent

Fir$ isses secrities (A)

'etainedcash flo#s (F)

!nvests

in assets

(B)

Dividends andde(t pay$ents (E)

Crrent assets

Fi%ed assets

Financial

$ar)ets

*hort-ter$ de(t+ong-ter$ de(t

,ity shares

ltimately/ the *irm must be a

cash generating activit"'

The +ash *lo.s *rom the *irm

must ex+eed the +ash *lo.s *rom

the *inan+ial mar#ets'

U i it f T l d || C ll f B i d ! ti


12/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


'he Corporate Fir*

The corporate form of business is the standard methodfor solving the problems encountered in raising largeamounts of cash2

(owever businesses can take other forms2

1#

U i it f T l d || C ll f B i d ! tiBUAD6200 || C Fi || Ch 1


13/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


For* o Buine ,rani.ation

The 4ole5roprietorship

The 5artnership" 6eneral

5artnership" 7imited 5artnership The Corporation

8dvantages and9isadvantages" 7i)uidity and

Marketability of:wnership

" Control" 7iability" Continuity of ;


14/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


A Co*parion o artnerhip and Corporation

1+

Corporation 5artnership7i)uidity 4hares can

easily beeights !sually each

share gets onevote

6eneral partner is in

charge? limitedpartners may havesome voting rights

Ta


15/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket

University of Toledo || College of BsinessBUAD6200 || Corporate Finance || Chapter 1

'he oa# o Financia# anae*ent

%hat is the correct goal'" Ma


16/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


'he Aency ro#e*

8gency relationship" 5rincipal hires an agent to represent hisBher interest

" 4tockholders principalsD hire managers agentsD to runthe company

8gency problem" Con"ict of interest between principal and agent

Can you name one or two agency relationshipfrom your everyday life'

" 9octors car mechanic or '

1-



17/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


anaeria# oa#

Managerial goals may be diAerent fromshareholder goals" ;


18/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


anain anaer

Managerial compensation" Encentives can be used to align management and

stockholder interests

" The incentives need to be structured carefully tomake sure that they achieve their intended goal

Corporate control" The threat of a takeover may result in better

management

:ther stakeholders

1/



19/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


!eparation o ,/nerhip and Contro#

10

Board of Directors

.anage$ent

Assets

De(t

,ity

*

h ar eh ol d er s

D

e ( t h ol d er

s



20/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket


Financia# ar"et

5rimary Market" %hen a corporation issues securities cash "ows from

investors to the rm2

" !sually an underwriter is involved

4econdary Markets" Envolve the sale of usedG securities from one investor

to another2

" 4ecurities may be e


21/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket

y || gBUAD6200 || Corporate Finance || Chapter 1

Financia# ar"et

#1

Firms

In)estors

Se+ondary ar#et

money

se+urities

Sue3ob

Stoc%s and

Bonds

oney

4rimary ar#et



22/22

CorporateFinance

Total FirmValue

CorporateFirm

FinancialMarket

y || g|| p || p

3uic" 3ui.

%hat are the three basic )uestions Financial Managersmust answer'

%hat are the three ma=or forms of businessorganiation'

%hat is the goal of nancial management'

%hat are agency problems and why do they e

Chap-01-Lecture-Summer_16_Ross_10 India Yu.pptx

Documents

Transcript of Chap-01-Lecture-Summer_16_Ross_10 India Yu.pptx