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Corporate Finance
LECTURE 1: INTRODUCTION TO CORPORATE
FINANCE
Teaching Details Lecturers and tutors Mr. Nguyễn Anh Tuấn Email: tuanna@hanu.edu.vn Ms. Nguyễn Thị Thanh Loan Email: loanntt@hanu.edu.vn Ms. Nguyễn Thị Vân Anh Email: ntva1279@gmail.com
Unit Assessment
Unit Assessment is as follows:
◦ Class Participant 10%
◦ Internal assessment (2 Progression tests) 40%
◦ Final examination (50% hurdle) 50%
Assessment components
◦ Progression test: 30-40 minutes duration
◦ Final examination: 2-hour exam ( Sample Exam will
be provided)
How to Succeed in this Subject?
Regularly attend lectures and tutorials
Be prepared before lectures and tutorials
◦ Read the relevant chapters of the textbook before a
lecture
◦ Complete assigned tutorial exercises independently
at the first time
Resolve study difficulties and problems as soon as
possible.
Outline
- What is Corporate Finance?
- The Goal of Financial Management
- The Corporate Firm
- The Importance of Cash Flows
- The Agency Problem and Control of the Corporation
- What is Corporate Finance? Concerned (from the perspective of a stock exchange- listed firm) with the:
◦ Investment (Acquisition)
◦ Financing
◦ Working Capital Management
Financing Decision Current Assets Fixed Assets 1 Tangible 2 Intangible Shareholder s’ Equity Current Liabilities Long-Term Debt
How should the
firm raise funds
for the selected
investments?
Working Capital Management Decision Current Assets Fixed Assets 1 Tangible 2 Intangible Shareholder s’ Equity Current Liabilities Long-Term Debt
How should
short-term
assets be
managed and
financed?
Net Working Capital
- The Goal of Financial Management
To maximise the market value of the firm (equity) to its
owners (its shareholders)
◦ Market value = Share price of the company
◦ Share price represents the present value of future
cash flows expected to be provided by the firm
◦ This is what shareholders have a claim to
Value vs. price
The value of shares are not observable. In contrast, the
price of shares can be observable.
If one believes that share price is an accurate/good
estimate of share value , the appropriate goal would be
to maximize the price of shares.
Nature (^) of a Listed Company
Represents a separate ‘legal’ entity, with similar rights to
individuals
Owners are the shareholders who purchase the
company’s ordinary shares
Shareholders have a ‘ residual ’ claim to assets of the
company on liquidation
Most of these companies run by “ independent ’
managers appointed by the Board of Directors
(representing the shareholders)
Benefits (^) of a listed Company
Raising Capital : Can access and raise large amounts of
capital (this is the primary reason for listing)
Ownership Transferring: Ownership (shares) is easily
transferable between owners (buying and selling on the
Stock market)
Liquidity : The liquidity can reduce transaction costs
and in turn the cost of equity
Limited Liability : Liability of owners is limited to the
purchase price of their shares
Hypothetical Organization Chart Chairman of the Board and Chief Executive Officer (CEO) Board of Directors President and Chief Operating Officer (COO) Vice President and Chief Financial Officer (CFO) Treasurer Controller Cash Manager Capital Expenditures Credit Manager Financial Planning Tax Manager Financial Accounting Cost Accounting Data Processing
The importance of Cash Flow
- Identification of Cash Flow (CF)
- Accounting Profit versus Cash Flow (Ex 1.1 p9) The Midland Co. refines and trades gold. At the end of the year, it sold 2 , 500 ounces of gold for $ 1 million. The company has acquired the gold for $ 900 , 000 at the beginning of the year. The company paid cash for the gold when it was purchased. Unfortunately it has yet to collect from the customer to whom the gold was sold. Calculate the Profit and Cash Flow at the end of the year? Profit = $100, Cash Flow = $