1、Fundamentals of Corporate Finance1Grades Assignments (25%)Class participation (15%) Final exam (60%)E-mail: 2Chapter 1The Corporation and the Financial Manager3ObjectivesGive examples of the investment and financing decisions that financial managers make, and explain the responsibilities of the CFO,

2、 treasurer, and controllerCite some of the advantages and disadvantages of organizing a business as a corporationExplain why maximizing market value is the logical financial goal for the corporationUnderstand why conflicts of interest arise, especially in large, public corporationsExplain how corpor

3、ations mitigate conflicts and encourage ethical behavior4ContentInvestment and financing decisionsWhat is a corporation?Who is the financial manager?Goals of the corporation5What is finance?Finance can be defined as the art and science of managing money.Corporations face two broad financial question

4、s: What investments should the firm make? And how should it pay for those investments? The first question involves spending money; the second involves raising it.Making good investment and financing decisions is the chief task of the financial manager.7The Investment Decision Investment decision /ca

5、pital budgeting decision: decision to invest in tangible or intangible assetsInvestments in automobile plantInvestments in research and development (R&D)8The Investment DecisionCurrent AssetsFixed Assets1 Tangible 2 IntangibleShareholders EquityCurrent LiabilitiesLong-Term DebtWhat long-term investm

6、ents should the firm choose?10If a projects value is greater than its required investment, then the project is attractive financiallyThe financial manager helps the firm to invest in projects that are worth more than they cost.11The Financing Decision Financing decision: the form and amount of finan

7、cing of a firms investmentIssue shares of stockborrow from a bank12The choice between debt and equity financing is often called the capital structure decisionHere “capital” refers to the firms sources of long-term financing.A firm that is seeking to raise long-term financing is said to be “raising c

8、apital.”14Capital StructureThe 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 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 m

9、atters.50% Debt50% Equity25% Debt75% Equity70% Debt30% Equity15Self-Test 1.1Are the following capital budgeting or financing decisions? Hint: In one case the answer is “both”Intel decides to spend $1 billion to develop a new microprocessorVolkswagen borrows 350 million euros from Deutsche BankBP (Br

10、itish Petroleum) constructs a pipeline to bring natural gas onshore from a production platform in the Gulf of MexicoBudweiser spends 200 million euros to launch a new brand of beer in European marketsPfizer issues new shares to buy a small biotech company 17Financing and investment decisions are sep

11、arated and connectedThe amount of investment determines the amount of financing that has to be raised The investors who contribute financing today expect a return on that investment in the future Thus, the investments that the firm makes today have to generate future returns for payout to investors1

12、8To carry on business, corporations need an almost endless variety of real assets.Many of these assets are tangible, such as machinery, factories, and offices; others are intangible, such as technical expertise, trademarks, and patents. All of them need to be paid for. To obtain the necessary money,

13、 the corporation sells claims on its real assets and on the cash those assets will generate. These claims are called financial assets or securities.19Flow of cash between financial markets and the firms operations. Key: (1) Cash raised by selling financial assets to investors; (2) cash invested in t

14、he firms operations and used to purchase real assets; (3) cash generated by the firms operations; (4a) cash reinvested;(4b) cash returned to investors.20Ultimately, the firm must be a cash generating activity.The cash flows from the firm must exceed the cash flows from the financial markets21Self-Te

15、st 1.2Which of the following are financial assets, and which are real assets?A patentA share of stock issued by Bank of New YorkA blast furnace in a steel-making factoryA mortgage loan taken out to help pay for a new homeAfter a successful advertising campaign, potential customers believe that your

16、brand of potato chips is extra crispyAn IOU( I owe you) from your brother-in-law22ContentInvestment and financing decisionsWhat is a corporation?Who is the financial manager?Goals of the corporation24Corporation: 公司Stockholder/shareholder: 股東Legal entity: 法人實(shí)體Limited liability: 有限責(zé)任The separation of

17、 ownership and management: 所有權(quán)與經(jīng)營(yíng)權(quán)相分離25The separation of ownership and management has clear advantages. It allows share ownership to change without interfering with the operation of the business. It allows the firm to hire professional managers. But it also brings problems if the managers and owners

18、 objectives differ. 27Forms of Business OrganizationThe 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.The Sole Proprietorship獨(dú)資企業(yè)The Partnership合伙企業(yè)General Partnership一般合伙L(fēng)imited Partne

19、rship有限合伙The Corporation公司28ContentInvestment and financing decisionsWhat is a corporation?Who is the financial manager?Goals of the corporation29Chief Finanical Officer (CFO): 財(cái)務(wù)總監(jiān)Treasurer: 資金管理人員、司庫(kù)人員Controller: 會(huì)計(jì)主管人員financial statements:財(cái)務(wù)報(bào)表30Financial managers in large corporations31The Financ

20、ial ManagerThe Financial Managers primary goal is to increase the value of the firm by: Selecting value creating projects Making smart financing decisions32P9 Self-Test 1.333ContentInvestment and financing decisionsWhat is a corporation?Who is the financial manager?Goals of the corporation34Value ma

21、ximization: 價(jià)值最大化Shareholders: 股東Stakeholders: 利益相關(guān)者Profit maximization: 利潤(rùn)最大化Owner-manager: 業(yè)主經(jīng)理人Principal：委托人Agency problem: 代理問(wèn)題Compensation plan: 薪酬計(jì)劃Board of directors: 董事會(huì)Security analyst: 證券分析師Creditor: 債權(quán)人Takeover: 接管351.3 The Goal of Financial ManagementWhat is the correct goal?Maximize pro

22、fit?Maximize market share?Maximize shareholder wealth?36Market value maximizationValue maximization is the natural financial goal of the firmMaximizing value maximizes the wealth of the firms owners, its shareholdersShareholders can invest or consume that wealth as they wishProfit maximization37Ethi

23、cs and value maximizationModern finance does not condone(寬恕) attempts to pump up stock price by unethical meansThe surest route to maximum value starts with products and services that satisfy customersA good reputation with customers, employees, and other stakeholders is also important for the firms

24、 long-run profitability and value38 The Agency RelationshipPrincipal hires an agent to represent his/her interestStockholders (principals) hire managers (agents) to run the company39Do managers really maximize value? Conflicts between shareholders and managers objectives create principalagent problems(Agency problem).Shareholder