公司理财实务英文版(ppt 16)
公司理财原版英文课件Chap.ppt
Interest Rates and Bond Valuation
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
Key Concepts and Skills
PV
$31.875 .11 2
1
1 (1.055)10
$1,000 (1.055)10
$825.69
8-9
YTM and Bond Value
When the YTM < coupon, the bond
1300
trades at a premium.
Bond Value
Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand the impact of inflation on interest
Bond Concepts
Bond prices and market interest rates move in opposite directions.
When coupon rate = YTM, price = par value
When coupon rate > YTM, price > par value (premium bond)
volatility with respect to changes in the discount rate.
公司理财实务英文版(ppt 16)
Current Assets
(Financial Decision)
Net Working Capital
Current Liabilitiesssets 1 Tangible 2 Intangible
How much shortterm cash flow does a company need to pay its bills?
Corporate Finance
Shareholders’ Equity
1-1
The Balance-Sheet Model of the Firm
The Capital Budgeting Decision
Current Assets
(Investment Decision)
Current Liabilities
Shareholders’ Equity
© Professor Ho-Mou Wu
Corporate Finance
1-4
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.
1-6
Financial Markets
• Primary Market
– When a corporation issues securities, cash flows from investors to the firm.
– Usually an underwriter is involved
Invests in assets
公司理财英文版PPT34页
46、我们若已接受最坏的，就再没有什么损失。——卡耐基 47、书到用时方恨少、事非经过不知难。——陆游 48、书籍把我们引入最美好的社会，使我们认识各个时代的伟大智者。——史美尔斯 49、熟读唐诗三百首，不会作诗也会吟。——孙洙 50、谁和我一样用功，谁就会和我一样成功。——莫扎特
公司理财英文版
36、如果我们国家的法律中只有某种 神灵， 而不是 殚精竭 虑将神 灵揉进 宪法， 总体上 来说， 法律就 会更好 。—— 马克·吐 温 37、纲纪废弃之日，便是暴政兴起之 时。— —威·皮 物特
38、若是没有公众舆论的支持，法律 是丝毫 没有力 量的。 ——菲 力普斯 39、一个判例造出另一个判例，它们 迅速累 聚，进 而变成 法律。 ——朱 尼厄斯
公司理财英文版课件Chap016
• The firm can decrease leverage by issuing new shares and retiring outstanding debt
• Understand the effect of financial leverage on cash flows and the cost of equity
• Understand the impact of taxes and bankruptcy on capital structure choice
16-3
Capital Restructuring
• We are going to look at how changes in capital structure affect the value of the firm, all else equal
• Capital restructuring involves changing the amount of leverage a firm has without changing the firm’s assets
• We can maximize stockholder wealth by maximizing the value of the firm or minimizing the WACC
16-5
The Effect of Leverage
• How does leverage affect the EPS and ROE of a firm?
公司理财英文版第十六章
Example: Homemade Leverage and ROE
• Current Capital • Proposed Capital Structure Structure • Investor borrows $500 • Investor buys $250 worth of and uses $500 of her own stock (25 shares) and $250 to buy 100 shares of stock worth of bonds paying 10%. • Payoffs: • Payoffs:
– RA is the “cost” of the firm’s business risk, i.e., the risk of the firm’s assets – (RA – RD)(D/E) is the “cost” of the firm’s financial risk, i.e., the additional return required by stockholders to compensate for the risk of leverage
• Proposition II
– The WACC of the firm is NOT affected by capital structure
16-14
Case I - Equations
• WACC = RA = (E/V)RE + (D/V)RD • RE = RA + (RA – RD)(D/E)
16-3
Capital Restructuring
• We are going to look at how changes in capital structure affect the value of the firm, all else equal • Capital restructuring involves changing the amount of leverage a firm has without changing the firm’s assets • The firm can increase leverage by issuing debt and repurchasing outstanding shares • The firm can decrease leverage by issuing new shares and retiring outstanding debt
公司理财(罗斯)第1章(英文
03 Valuation Basis
The concept and significance of valuation
要点一
Definition
Valuation is the process of estimating the worth of an asset or a company, typically through the use of financial metrics and analysis.
The Time Value of Money
公司理财相关知识(英文版)(doc 8页)
Chapter 8: Strategy and Analysis in Using Net Present Value Concept Questions - Chapter 88.1 •What are the ways a firm can create positive NPV.1.Be first to introduce a new product.2.Further develop a core competency to product goods or services at lower coststhan competitors.3.Create a barrier that makes it difficult for the other firms to competeeffectively.4.Introduce variation on existing products to take advantage of unsatisfieddemand5.Create product differentiation by aggressive advertising and marketingnetworks.e innovation in organizational processes to do all of the above.•How can managers use the market to help them screen out negative NPV projects?8.2 •What is a decision tree?It is a method to help capital budgeting decision-makers evaluating projectsinvolving sequential decisions. At every point in the tree, there are differentalternatives that should be analyzed.•What are potential problems in using a decision tree?Potential problems 1) that a different discount rate should be used for differentbranches in the tree and 2) it is difficult for decision trees to capture managerialoptions.8.3 •What is a sensitivity analysis?It is a technique used to determine how the result of a decision changes whensome of the parameters or assumptions change.•Why is it important to perform a sensitivity analysis?Because it provides an analysis of the consequences of possible prediction orassumption errors.•What is a break-even analysis?It is a technique used to determine the volume of production necessary to breakeven, that is, to cover not only variable costs but fixed costs as well.•Describe how sensitivity analysis interacts with break-even analysis.Sensitivity analysis can determine how the financial break-even point changeswhen some factors (such as fixed costs, variable costs, or revenue) change. Answers to End-of-Chapter ProblemsQUESTIONS AND PROBLEMSDecision Trees8.1 Sony Electronics, Inc., has developed a new type of VCR. If the firm directly goes to the market with the product, there is only a 50 percent chance of success. On the other hand, if the firm conducts test marketing of the VCR, it will take a year and will cost $2 million.Through the test marketing, however, the firm is able to improve the product and increase the probability of success to 75 percent. If the new product proves successful, the present value (at the time when the firm starts selling it) of the payoff is $20 million, while if it turns out to be a failure, the present value of the payoff is $5 million. Should the firm conduct test marketing or go directly to the market? The appropriate discount rate is 15 percent.8.1 Go directly:NPV = 0.5 ⨯ $20 million + 0.5 ⨯ $5 million= $12.5 millionTest marketing:NPV = -$2 million + (0.75 ⨯ $20 million + 0.25 ⨯ $5 million) / 1.15= $12.13 millionGo directly to the market.8.2 The marketing manager for a growing consumer products firm is considering launching a new product. To determine consumers’ interest in such a product, the manager can conduct a focus group that will cost $120,000 and has a 70 percent chance of correctly predicting the success of the product, or hire a consulting firm that will research the market at a cost of $400,000. The consulting firm boasts a correct assessment record of 90 percent. Of course going directly to the market with no prior testing will be the correct move 50 percent of the time. If the firm launches the product, and it is a success, the payoff will be $1.2 million.Which action will result in the highest expected payoff for the firm?8.2 Focus group: -$120,000 + 0.70 ⨯ $1,200,000 = $720,000Consulting firm: -$400,000 + 0.90 ⨯ $1,200,000 = $680,000Direct marketing: 0.50 ⨯ $1,200,000 = $600,000The manager should conduct a focus group.8.3 Tandem Bicycles is noticing a decline in sales due to the increase of lower-priced import products from the Far East. The CFO is considering a number of strategies to maintain its market share. The options she sees are the following:• Price the products more aggressively, resulting in a $1.3 million decline in cash flows.The likelihood that Tandem will lose no cash flows to the imports is 55 percent; there is a45 percent probability that they will lose only $550,000 in cash flows to the imports.• Hire a lobbyist to convince the regulators that there should be important tariffs placed upon overseas manufacturers of bicycles. This will cost Tandem $800,000 and will have a 75 percent success rate, that is, no loss in cash flows to the importers. If the lobbyists do not succeed, Tandem Bicycles will lose $2 million in cash flows. As the assistant to the CFO, which strategy would you recommend to your boss? Accounting Break-Even Analysis8.3 Price more aggressively:-$1,300,000 + (0.55 ⨯ 0) + 0.45 ⨯ (-$550,000)= -$1,547,500Hire lobbyist:-$800,000 + (0.75 ⨯ 0) + 0.25 ⨯ (-$2,000,000)= -$1,300,000Tandem should hire the lobbyist.8.4 Samuelson Inc. has invested in a facility to produce calculators. The price of the machine is $600,000 and its economic life is five years. The machine is fully depreciated by the straight-line method and will produce 20,000 units of calculators in the first year. The variable production cost per unit of the calculator is $15, while fixed costs are $900,000. The corporate tax rate for the company is 30 percent. What should the sales price per unit of the calculator be for the firm to have a zero profit?8.4 Let sales price be x.Depreciation = $600,000 / 5 = $120,000BEP: ($900,000 + $120,000) / (x - $15) = 20,000x = $668.5 What is the minimum number of units that a distributor of big-screen TVs must sell in a given period to break even?Sales price _ $1,500Variable costs _ $1,100Fixed costs _ $120,000Depreciation _ $20,000Tax rate _ 35%8.5 The accounting break-even= (120,000 + 20,000) / (1,500 - 1,100)= 350 units8.6 You are considering investing in a fledgling company that cultivates abalone for sale to local restaurants. The proprietor says he’ll return all profits to you after covering operating costs and his salary. How many abalone must be harvested and sold in the first year of operations for you to get any payback? (Assume no depreciation.)Price per adult abalone _ $2.00Variable costs _ $0.72Fixed costs _ $300,000Salaries _ $40,000Tax rate _ 35%How much profit will be returned to you if he sells 300,000 abalone?8.6 a. The accounting break-even= 340,000 / (2.00 - 0.72)= 265,625 abalonesb. [($2.00 ⨯ 300,000) - (340,000 + 0.72 ⨯ 300,000)] (0.65)= $28,600This is the after tax profit.Present Value Break-Even Analysis8.7 Using the information in the problem above, what is the present value break-even point if the discount rate is 15 percent, initial investment is $140,000, and the life of the project is seven years? Assume a straight-line depreciation method with a zero salvage value.A = $33,6508.7 EAC = $140,000 / 715.0Depreciation = $140,000 / 7 = $20,000BEP = {$33,650 + $340,000 ⨯ 0.65 - $20,000 ⨯ 0.35} / {($2 - $0.72) ⨯ 0.65}= 297,656.25≈ 297,657 units8.8 Kids & Toys Inc. has purchased a $200,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method for its economic life of five years and will be worthless after its life. The firm expects that the sales price of the toy is $25 while its variable cost is $5. The firm should also pay $350,000 as fixed costs each year. The corporate tax rate for the company is 25 percent, and the appropriate discount rate is 12 percent. What is the present value break-even point?8.8 Depreciation = $200,000 / 5 = $40,000A = $200,000 / 3.60478EAC = $200,000 / 512.0= $55,482BEP = {$55,482 + $350,000 ⨯ 0.75 - $40,000 ⨯ 0.25} / {($25 - $5) ⨯ 0.75}= 20,532.13≈ 20533 units8.9 The Cornchopper Company is considering the purchase of a new harvester. The company is currently involved in deliberations with the manufacturer and the parties have not come to settlement regarding the final purchase price. The management of Cornchopper has hired you to determine the break-even purchase price of the harvester.This price is that which will make the NPV of the project zero. Base your analysis on the following facts: • The new harvester is not expected to affect revenues, but operating expenses will be reduced by $10,000 per year for 10 years.• The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was purchased for $45,000. It has been depreciated on a straight-line basis.• The old harvester has a current market value of $20,000.• The new harvester will be depreciated on a straight-line basis over its 10-year life.• The corporate tax rate is 34 percent.• The firm’s required rate of return is 15 percent.• All cash flows occur at year-end. However, the initial investment, the proceeds from selling the old harvester, and any tax effects will occur immediately. Capital gains and losses are taxed at the corporate rate of 34 percent when they are realized.• The expected market value of both harvesters at the end of their economic lives is zero.8.9 Let I be the break-even purchase price.Incremental C0Sale of the old machine $20,000Tax effect 3,400Total $23,400Depreciation per period= $45,000 / 15= $3,000Book value of the machine= $45,000 - 5 ⨯ $3,000= $30,000Loss on sale of machine= $30,000 - $20,000= $10,000Tax credit due to loss= $10,000 ⨯ 0.34= $3,400Incremental cost savings:$10,000 (1 - 0.34) = $6,600Incremental depreciation tax shield:[I / 10 - $3,000] (0.34)The break-even purchase price is the Investment (I), which makes the NPV be zero.NPV = 0= -I + $23,400 + $6,600 1015.0A+ [I / 10 - $3,000] (0.34) 1015.0A= -I + $23,400 + $6,600 (5.0188)+ I (0.034) (5.0188) - $3,000 (0.34) (5.0188)I = $61,981Scenario Analysis8.10 Ms. Thompson, as the CFO of a clock maker, is considering an investment of a $420,000 machine that has a seven-year life and no salvage value. The machine is depreciated by a straight-line method with a zero salvage over the seven years. The appropriate discount rate for cash flows of the project is 13 percent, and the corporate tax rate of the company is 35 percent. Calculate the NPV of the project in the following scenario. What is your conclusion about the project?Pessimistic Expected OptimisticUnit sales 23,000 25,000 27,000Price $ 38 $ 40 $ 42Variable costs $ 21 $ 20 $ 19Fixed costs $320,000 $300,000 $280,0008.10 Pessimistic:NPV = -$420,000 +(){}23,000$38$21$320,0000.65$60,0000.351.13tt17--⨯+⨯=∑= -$123,021.71 Expected:NPV = -$420,000 +(){}25,000$40$20$300,0000.65$60,0000.351.13t7--⨯+⨯=∑t1= $247,814.17 Optimistic:NPV = -$420,000 +(){}27,000$42$19$280,0000.65$60,0000.351.13tt17--⨯+⨯=∑= $653,146.42Even though the NPV of pessimistic case is negative, if we change one input while all others are assumed to meet their expectation, we have all positive NPVs like the one before. Thus, this project is quite profitable.Pessimistic NPVUnit sales 23,000 $132,826.30Price $38 $104,079.33Variable costs $21 $175,946.75Fixed costs $320,000 $190,320.248.11 You are the financial analyst for a manufacturer of tennis rackets that has identified a graphite-like material that it is considering using in its rackets. Given the following information about the results of launching a new racket, will you undertake the project?(Assumptions: Tax rate _ 40%, Effective discount rate _ 13%, Depreciation _ $300,000per year, and production will occur over the next five years only.)Pessimistic Expected OptimisticMarket size 110,000 120,000 130,000Market share 22% 25% 27%Price $ 115 $ 120 $ 125Variable costs $ 72 $ 70 $ 68Fixed costs $ 850,000 $ 800,000 $ 750,000Investment $1,500,000 $1,500,000 $1,500,0008.11 Pessimistic:NPV = -$1,500,000+(){}1100000220000600000401131,.$850,.$300,..⨯--⨯+⨯=∑$115$725tt= -$675,701.68Expected:NPV = -$1,500,000+(){}1200000250000600000401131,.$800,.$300,..⨯--⨯+⨯=∑$120$705tt= $399,304.88Optimistic:NPV = -$1,500,000+(){}130,0000.27$125$68$750,0000.60$300,0000.401.13tt15⨯--⨯+⨯=∑= $1,561,468.43The expected present value of the new tennis racket is $428,357.21. (Assuming there are equal chances of the 3 scenarios occurring.)8.12 What would happen to the analysis done above if your competitor introduces a graphite composite that is even lighter than your product? What factors would this likely affect? Do an NPV analysis assuming market size increases (due to more awareness of graphite-based rackets) to the level predicted by the optimistic scenario but your market share decreases to the pessimistic level (due to competitive forces). What does this tell you about the relative importance of market size versus market share?8.12 NPV =(){}-+⨯--⨯+⨯=∑1,500,000130,0000.22$120$70$800,0000.60$300,0000.401.13tt15= $251,581.17The 3% drop in market share hurt significantly more than the 10,000 increase in marketsize helped. However, if the drop were only 2%, the effects would be about even. Market size is going up by over 8%, thus it seems market share is more important than market size. The Option to Abandon8.13 You have been hired as a financial analyst to do a feasibility study of a new video game for Passivision. Marketing research suggests Passivision can sell 12,000 units per year at $62.50 net cash flowper unit for the next 10 years. Total annual operating cash flow is forecasted to be $62.50 _ 12,000 _ $750,000. The relevant discount rate is 10 percent.The required initial investment is $10 million.a. What is the base case NPV?b. After one year, the video game project can be abandoned for $200,000. After one year,expected cash flows will be revised upward to $1.5 million or to $0 with equalprobability. What is the option value of abandonment? What is the revised NPV?A) = -$5,391,574.678.13 a. NPV = -$10,000,000 + ( $750, 000 ⨯1010.A)b.Revised NPV = -$10,000,000 + $750,000 / 1.10 + [(.5 ⨯ $1,500,000 ⨯9.10+ (.5 ⨯ $200,000 )] / 1.10= -$5,300,665.58Option value of abandonment = -$5,300,665.58 – ( -$5,391,574.67 )= $90,909.098.14 Allied Products is thinking about a new product launch. The vice president of marketing suggests that Allied Products can sell 2 million units per year at $100 net cash flow per unit for the next 10 years. Allied Products uses a 20-percent discount rate for new product launches and the required initial investment is $100 million.a. What is the base case NPV?b. After the first year, the project can be dismantled and sold for scrap for $50 million. If expected cash flows can be revised based on the first year’s experience, when would it make sense to abandon the project? (Hint: At what level of expected cash flows does it make sense to abandon the project?)A) = $738.49Million8.14 a. NPV = -$100M + ( $100 ⨯ 2M ⨯10.20Ab.$50M = C9.20C = $12.40 Million (or 1.24 Million units )。
公司理财培训资料英文版(ppt 27)
i1
i2? i3? i4?
1 year zero: Price = 926 2 year zero: Price = 842 3 year zero: Price = 758 4 year zero: Price = 683
1 year bond 2 year bond 3 year bond 4 year bond
investors：
(1
y2 )2
E
1
1
i2
(1
y1 )
.
Hence
1 1 f2
E 1
1 i2
f 2 E(i2 )
.
The Liquidity Preference Hypothesis: Ei2 + risk premium = f2 .
In general, fn - risk premium = Ein .…………………….……..(3.5)
Corporate Finance
3-0
3.1 Valuation of Bonds
Example 1：
Suppose we observe the following bond prices for default-free zero coupon bonds (pure discount bond, with face value $1,000)：
useful summary measure.
© Professor Ho-Mou Wu
Corporate Finance
3-2
Yield to Maturity
Example 1.(continued): we can convert bond prices into “yield to maturity” ( yn)
公司理财英文版课件Chap.ppt
16-2
Chapter Outline
• The Capital Structure Question • The Effect of Financial Leverage • Capital Structure and the Cost of Equity Capital • M&M Propositions I and II with Corporate Taxes • Bankruptcy Costs • Optimal Capital Structure • The Pie Again • The Pecking-Order Theory • Observed Capital Structures • A Quick Look at the Bankruptcy Process
• When we increase the amount of debt financing, we increase the fixed interest expense
• If we have a really good year, then we pay our fixed cost and we have more left over for our stockholders
16-4
Choosing a Capital Structure
• What is the primary goal of financial managers?
– Maximize stockholder wealth
• We want to choose the capital structure that will maximize stockholder wealth
公司理财精要版原书第12版英文版最新精品课件Ross_12e_PPT_Ch06_Formulas
DISCOUNTED CASH FLOW VALUATION (FORMULAS)
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
6F-3
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
6F-9
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
MULTIPLE CASH FLOWS – FV (EXAMPLE 6.1, CTD.)
• Find the value at year 3 of each cash flow and add them together. ▪ Today (year 0): FV = 7000(1.08)3 = 8,817.98 ▪ Year 1: FV = 4,000(1.08)2 = 4,665.60 ▪ Year 2: FV = 4,000(1.08) = 4,320 ▪ Year 3: value = 4,000 ▪ Total value in 3 years = 8,817.98 + 4,665.60 + 4,320 + 4,000 = 21,803.58
公司理财原版英文课件Chap
RP X 1 ( R1 β1 F ε1 ) X 2 ( R 2 β2 F ε2 ) X N ( R N βN F εN ) RP X 1 R1 X 1 β1 F X 1ε1 X 2 R 2 X 2 β2 F X 2 ε2 X N R N X N βN F X N ε N
R 8%
R 8% 2.30 5% 1.50 (3%) 0.50 (10%) 1% R 12%
12-12
12.3 Portfolios and Factor Models
Now let us consider what happens to portfolios of stocks when each of the stocks follows a one-factor model. We will create portfolios from a list of N stocks and will capture the systematic risk with a 1-factor model. The ith stock in the list has return:
R R 2.30 5% 1.50 (3%) 0.50 FS 1%
12-10
Systematic Risk and Betas: Example
R R 2.30 5% 1.50 (3%) 0.50 FS 1%
If it were the case that the dollar-euro spot exchange rate, S($,€), was expected to increase by 10%, but in fact remained stable during the time period, then: FS = Surprise in the exchange rate = actual – expected = 0% – 10% = – 10%
公司理财英文版课件Chap016
16-5
The Effect of Leverage
• How does leverage affect the EPS and ROE of a firm?
• Proposition II
– The WACC of the firm is NOT affected by capital structure
16-14
Case I - Equations
• WACC = RA = (E/V)RE + (D/V)RD
• RE = RA + (RA – RD)(D/E)
• If we expect EBIT to be less than the break-even point, then leverage is detrimental to our stockholders
16-9
Example: Break-Even EBIT
EBIT EBIT 250,000
• Payoffs:
• Payoffs:
– Recession: 100(0.60) .1(500) = $10
– Recession: 25(.20) + .1(250) = $30
– Expected: 100(1.30) .1(500) = $80
– Expected: 25(1.60) + .1(250) = $65
• Case II – Assumptions – Corporate taxes, but no personal taxes – No bankruptcy costs
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The Balance-Sheet Model of the Firm
The Capital Structure Decision
(Financing Decision)
Current Assets
Fixed Assets 1 Tangible
How can the firm raise the money for the required investments?
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
© Professor Ho-Mou Wu
What longterm investments should the firm engage in?
Corporate Finance
Shareholders’ Equity
2 Intangible
Current Liabilities Long-Term
Debt
Shareholders’ Equity
© Professor Ho-Mou Wu
Corporate Finance
1-3
The Balance-Sheet Model of the Firm
The Net Working Capital Investment Decision
Introduction to Corporate Finance
• Corporate Finance addresses the following three questions:
1. What long-term investments should the firm engage in?
2. How can the firm raise money for the required investments?
Total Value of Assets:
Current Assets
Total Firm Value to Investors:
Current Liabilities
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
© Professor Ho-Mou Wu
Invests in assets
(B)
Retained cash flows (F)
Current assets
Cash flow Dividends and
Fixed assets from firm (C) debt payments (E)
Financial markets
Short-term debt Long-term debt Equity shares
pie, then the capital structure decision
matters.
© Professor Ho-Mou Wu
Corporate Finance
1-5
The Firm and the Financial Markets
Firm
Firm issues securities (A)
Current Assets
(Financial Decision)
Net Working Capital
Current Liabilities
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
How much shortterm cash flow does a company need to pay its bills?
2750%50%30% DebtDeEbtquity
The Capital Structure decision can be viewed as
5705% Equity
how best to slice up a the
pie.
If how you slice the pie affects the size of the
• Secondary Markets
– Involve the sale of “used” securities from one investor to another.
3. How much short-term cash flow does a company need to pay its bills?
4.
(RWJ ch.1)
© Professor Ho-Mou Wu
Corporate Finance
1-0
The Balance-Sheet Model of the Firm
1-6
Financial Markets
• Primary Market
– When a corporation issues securities, cash flows from investors to the firm.
– Usually an underwriter is involved
Taxes (D)
Ultimately, the firm must be a cash generating activity.
© Professor Ho-Mou Wu
Government
Corporate Finance
The cash flows from the firm must exceed the cash flows from the financial markets.
Shareholders’ uity
© Professor Ho-Mou Wu
Corporate Finance
1-4
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.
Corporate Finance
Shareholders’ Equity
1-1
The Balance-Sheet Model of the Firm
The Capital Budgeting Decision
Current Assets
(Investment Decision)
Current Liabilities