1FI3300Corporation Finance 010Spring Semester 2010Dr. Isabel TkatchAssistant Professor of Finance1Agenda☺Course syllabus☺Course calendarh d dl2☺Other administrative details☺Kale & Fendler: Chapter 1 Course Syllabus☺Expectations☺ Be here☺ Ask questions☺ Work practice problems3☺Materials☺ Kale and Fendler, Lectures in Corporate Finance, 5th edition – read it and bring to class☺ Financial Calculator: Texas Instruments BA II Plus – bring to class every day☺ Lecture notes – on the web pageCourse Syllabus☺Grading☺2 Midterm Exams @ 25% each☺Comprehensive Final exam @ 30%☺Quizzes and Assignments @ 20%4Qg@☺Make-up Policy☺No make-up quizzes or exams☺Everyone must take the final exam☺No extra credit work to improve your gradeCourse Syllabus☺Office Hours☺ Robinsons College of Business, 35 Broad Street, Room: 12415☺ Wednesday 4:00 PM – 5:00 PM☺ Drop-in, phone, e-mail and by appointment62Chapter 1:Introduction and Overview7Learning objectivesz Understand why sound financial management is vital to the survival of a businessz Identify 3 main subject areas in financezDescribe different forms of business organization8Descr be d fferent forms of bus ness organ zat onz Identify the goal of the financial managerz Describe the basic difference between financial management and accountingz Understand the importance of cash and the relation between cash-flows and value Subject Areas in FinanceFinancialMarkets9SurplusUnitsDeficitUnitsFinancialInstitutionsSubject Areas in Financez Investmentsz Corporate financial managementz Financial markets & institutions 10The 3 areas are linked together by the identification, management & valuation of risky cash flows.Subject Areas in Financez Firms (deficit units) have ideas, but need capital to implement them: they borrow / raise capital from deficit units to be able to buy the physical assets necessary for production. To do so, they issue financial assets against future cash flows their physical assets d are expected to generate.z Investors (surplus units) purchase the financial assets, thus lending money to / investing in firms. They expect a positive return on their investment: the return is a function of future cash flowsthat the firm’s physical assets are expected to generate.11Subject Areas in FinanceFinancial Asset12InvestorsFirmsCapitalFinancial Asset3Forms of Business OrganizationOwnership Ability toRaise CapitalLiabilitySole Proprietor-ship•100% owned by a single individual•Owner usually Difficult Unlimited personal liability13ymanages companyPartnership Two or more individualsLess difficult than Sole ProprietorshipUnlimited personal liabilityCorporation Separation of ownership and control (managers)The least difficult of all formsLimited to the owner’s initial investmentThe Goal of Corporate Financial ManagementMaximize Shareholders’ WealthMaximize Shareholders’ WealthThe financial manager is the “agent” of the owners (shareholders) and they want to make 14()ymoney on their investment.Maximizing shareholders’ wealth=Maximizing the stock priceFinancial Management and the Corporation’s Survival• Excellent financial management cannot save a firm with a bad product, BUT…P fi il t •Poor financial management can cause a firm to fail, EVEN IF it efficiently produces, markets and delivers a highly demanded product or service.15Finance & AccountingAccounting• Historically based/ backward looking reports• Book value of the firm’s assetsFinance• Forward looking• Future cash flowsThe use of Accounting statements for Financial Management • Evaluate the status of the firm• Use past data to predict future cash flows and estimate the value of the firm16The Relation between Cash and ValueThe value of a financial asset (investment)is determined by the stream of future cash flowsit generates for the investor17What’s Next?FI 3300: Corporation FinanceAccounting Review (2) Firm’s Financial StatementsValuationTime Value of Money (6, 7)18Statement of Cash Flows (3)Financial statement Analysis (4)Strategic Financial Management (5)Financial Securities & Markets (8)Valuation of Bond & Stock (9)Capital Budgeting Basics (10)Capital Budgeting Advanced