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Introduction

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Transcript

  • 1.
    • Stock Market
      • Trading and insider trading
      • Daily trading volatility
    • Mutual fund scandals
      • late trading and market timing
      • fees
    • IPO allocations
      • Google
      • Frank Quattrone
    • Executive Compensations
      • Tyco
    • Corporate Governance and Earnings Management
      • Enron, Worldcom
    What do you read in WSJ?
  • 2.
    • The Four Basic Areas of Finance
      • Investments
      • Financial Institutions
      • International Finance
      • Corporate Finance
  • 3. Investment
    • What kinds of investment tools we have?
    • How to issue new securities?
    • Security Markets
    • Listing and listing requirements
    • What do Investment banks do?
      • Goldman Sachs, Merrill Lynch, JPMorgan, Lehman Brother, Saloman Smith Barney, Morgan Stanley
      • Investment banking (underwriting): Underwrites IPOs, SEOs, places private equity ...
      • Brokage Service: execute security transaction, offers M&A advisory services ...
      • Asset management
  • 4. Financial Institutions
    • Commercial Banks
    • Savings institutions
    • credit unions
    • mutual funds
    • insurance companies
    • pension funds
  • 5. International Finance
    • Foreign Exchange Risk
    • Political Risk
    • Terms like LIBOR, EURO, Eurodollar
    • What would be the impact on Japanese products if Yen Strengthens against Dollar?
  • 6.
    • Corporate Finance
  • 7. What is Corporate Finance?
    • 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?
  • 8. The Balance-Sheet Model of the Firm
      • What long-term investments should the firm engage in?
    Current Assets Fixed Assets 1 Tangible 2 Intangible
      • Total Value of Assets:
    Shareholders’ Equity Current Liabilities Long-Term Debt
      • Total Firm Value to Investors:
  • 9. The Balance-Sheet Model of the Firm How can the firm raise the money for the required investments? Current Assets Fixed Assets 1 Tangible 2 Intangible
      • Total Value of Assets:
    Shareholders’ Equity Current Liabilities Long-Term Debt
      • Total Firm Value to Investors:
  • 10. The Balance-Sheet Model of the Firm Net working capital Current Assets Fixed Assets 1 Tangible 2 Intangible
      • Total Value of Assets:
    Shareholders’ Equity Current Liabilities Long-Term Debt
      • Total Firm Value to Investors:
  • 11. 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 viewed 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 25% Debt 75% Equity 70% Debt 30% Equity
  • 12. The Financial Manager
    • To create value, the financial manager should:
    • Try to make smart investment decisions.
    • Try to make smart financing decisions.
  • 13. 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.
  • 14. Organization Chart
  • 15. 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
      • Continuity of Existence
      • Tax Considerations
  • 16. Goals of the Corporate Firm
    • The traditional answer is that the managers of the corporation are obliged to make efforts to maximize shareholder wealth.
  • 17. Managerial Goals
    • Managerial goals may be different from shareholder goals
      • Expensive perquisites
      • Survival
      • Independence
    • Increased growth and size are not necessarily the same thing as increased shareholder wealth.
  • 18. Separation of Ownership and Control Board of Directors Management Assets Debt Equity Shareholders Debtholders
  • 19. Do Shareholders Control Managerial Behavior?
    • Shareholders vote for the board of directors, who in turn hire the management team.
    • Contracts can be carefully constructed to be incentive compatible .
    • There is a market for managerial talent—this may provide market discipline to the managers—they can be replaced.
    • If the managers fail to maximize share price, they may be replaced in a hostile takeover.
  • 20. Financial Markets
    • Primary Market
      • When a corporation issues securities, cash flows from investors to the firm.
      • Usually an underwriter is involved
    • Secondary Markets
      • Involve the sale of “used” securities from one investor to another.
      • Securities may be exchange traded or trade over-the-counter in a dealer market.