Ch 01 Fin Mgt Overview - General-new

8112019 Ch 01 Fin Mgt Overview - General-new

httpslidepdfcomreaderfullch-01-fin-mgt-overview-general-new 135

Overview of FinancialManagement



Goal of the Firm

1) Profit Maximization

this goal ignores

a) TIMING of Returns

(Time Value of Money) b) UNCERTAINTY of Returns

(Risk)



Goal of the Firm

2) Shareholder WealthMaximization

this is the same as

a) Maximizing Firm Value

b) Maximizing Stock Price



Stock Prices and Shareholder

Value

The primary financial goal of management is

shareholder wealth maximization whichtranslates to maximizing stock price Value of any asset is present value of cash flow

stream to owners Most significant decisions are evaluated in terms

of their financial consequences Stock prices change over time as conditions

change and as investors obtain new informationabout a companyrsquos prospects



Determinants of Stock Prices

1-5

ldquoExpectedrdquoInvestor Returns ldquoPerceivedrdquoRisk

Managerial Actions the Economic

Environment Taxes and the Political Climate

StockrsquosPrice



What determines a firmrsquosfundamental or intrinsic value

Intrinsic value is the sum of all the futureexpected free cash flows when converted

into todayrsquos dollars

Value = + + hellip +FCF1 FCF2 FCF

infin

(1 + WACC)1 (1 + WACC)infin(1 + WACC)2



7

What three aspects of cash flowsaffect an investmentrsquos value

Amount of expected cash flows (bigger is

better)

Timing of the cash flow stream (sooner is

better) Risk of the cash flows (less risk is better)



8

Free Cash Flows (FCF)

Free cash flows are the cash flows that are

available (or free) for distribution to allinvestors (stockholders and creditors)

FCF = sales revenues - operating costs -operating taxes - required investments inoperating capital



Profit vs Cash

Financial Management - Reza Masri 9



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17

What is the weighted average

cost of capital (WACC)

WACC is the average rate of return required by

all of the companyrsquos investors

WACC is affected by

Capital structure (the firmrsquos relative use of debt and

equity as sources of financing)

Interest rates

Risk of the firm

Investorsrsquo overall attitude toward risk



Value Maximization


Risk ampReturn

Valuation

Investment Decisions

Financing Decisions

Income DistributionDecision

ValueMaximization



Financial Managementamp Other Fields of Management

FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22

Becoming a Public Corporation

and Growing Afterwards

Initial Public Offering (IPO) of Stock

Raises cash

Allows founders and pre-IPO investors toldquoharvestrdquo some of their wealth

Subsequent issues of debt and equity



Conflicts Between Managers and

Stockholders

Managers are naturally inclined to act in their

own best interests (which are not always thesame as the interest of stockholders)

But the following factors affect managerial

behavior Managerial compensation packages Direct intervention by shareholders

The threat of firing The threat of takeover



24

Agency Problems and

Corporate Governance

Agency problem managers may act in their own

interests and not on behalf of owners(stockholders)

Corporate governance is the set of rules that

control a companyrsquos behavior towards itsdirectors managers employees shareholderscreditors customers competitors andcommunity

Corporate governance can help control agencyproblems



Conflicts Between Stockholders and

Bondholders

Stockholders are more likely to prefer riskier

projects because they receive more of theupside if the project succeeds By contrastbondholders receiving fixed payments are more

interested in limiting risk Bondholders are particularly concerned about

the use of additional debt

Bondholders attempt to protect themselves byincluding covenants in bond agreements thatlimit the use of additional debt and constrain

managersrsquo actions





Investment Bankingamp Investment Management


Corporations

Investment

BankingHouses

Investors

Securities Securities

Dollars Dollars

Sell Side Underwriting amp selling

corporations securities to investors

Buy Side Advising investors ampmanaging investors fund in buying

securities



28

What are some types of

markets

A market is a method of exchanging one

asset (usually cash) for another asset

Physical assets vs financial assets

Spot versus future markets Money versus capital markets

Primary versus secondary markets

Private versus public markets





Capital MarketsSelected Comparison (ASEAN)

983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets

Selected Comparison (ASEAN)

983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets

Implications of active financial markets FINANCING alternatives for corporations INVESTMENT alternatives for investors



34

Why is corporate finance

important to all managers

Corporate finance provides the skills

managers need to Identify and select the corporate strategies and

individual projects that add value to their firm

Forecast the funding requirements of theircompany and devise strategies for acquiringthose funds





Goal of the Firm

1) Profit Maximization

this goal ignores

a) TIMING of Returns

(Time Value of Money) b) UNCERTAINTY of Returns

(Risk)



Goal of the Firm


this is the same as






Value









1-5




StockrsquosPrice







infin




7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Goal of the Firm


this is the same as






Value









1-5




StockrsquosPrice







infin




7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34












Value









1-5




StockrsquosPrice







infin




7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34












1-5




StockrsquosPrice







infin




7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34















infin




7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











7



better)





8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











8







Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash




Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash




Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash


ACCOUNTING



Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash




Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Profit vs Cash






17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34













17





WACC is affected by



Interest rates

Risk of the firm




Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Value Maximization


Risk ampReturn

Valuation


Financing Decisions


ValueMaximization




FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34












FinancialManagement

Math ampStatistics

Accounting

SocialSciences

OperationManagement

ETHICS

Economics







22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34















22




Raises cash






Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34












Stockholders








24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











24

Agency Problems and










Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34












Bondholders













Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34















Corporations

Investment

BankingHouses

Investors


Dollars Dollars




securities



28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











28


markets












983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34














983088983086983088

983089983088983088983086983088

983090983088983088983086983088

983091983088983088983086983088983092983088983088983086983088

983093983088983088983086983088

983094983088983088983086983088

983095983088983088983086983088 983094983088983091983086983097

983091983096983088983086983089

983091983091983094983086983095 983090983096983088983086983094

983089983092983088983086983097

983091983090983086983093

983117983137983154983147983141983156 983107983137983152983145983156983137983148983145983162983137983156983145983151983150 (983125983123983108 983138983145983148983148983145983151983150983155983081

as of Nov 2010



Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34











Capital Markets


983088

983090983088983088

983092983088983088

983094983088983088

983096983088983088

983089983084983088983088983088983097983096983092

983095983096983089 983095983091983093

983093983092983097

983092983089983093

983090983093983094

983118983157983149983138983141983154 983151983142 983113983155983155983157983141983154983155

as of Nov 2010






Financial Markets




34














Financial Markets




34











34









Ch 01 Fin Mgt Overview - General-new

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Transcript of Ch 01 Fin Mgt Overview - General-new