高级公司理财1

Valuation of a common share
An Example: Current forecasts are for XYZ Company to
pay dividends of $3, $3.24, and $3.50 over the next three years, respectively. At the end of three years you anticipate selling your stock at a price of $94.48. What is the price of the stock given a 12% expected return?
Why we do not focus on book value?
Book Value is the value of the firm according to the balance sheet
Book value of assets suffers from same problems like earnings
“Creative Accounting” Ignores investment / growth opportunities of
a firm
Objective / Goal of a Finance Manager
Maximize Market Value / Wealth for the Owners (Shareholders)
Market value is the value that shareholders place on their securities today. It depends on the future cash flows that they expect to receive.
Market value is forward looking.
Board of Directors Management
Shareholders Debtholders
Assets
Debt Equity
Advantages and disadvantages of corporations
Advantages:
Separate legal entity Easy transfer of ownership Corporation has unlimited life Shareholders have limited liability
Why not profit maximization?
There are problems in the use of accounting profit (earnings)
Ignores time value of money Ignores risk Calculated on the basis of accounting rules
But, it is probably the most objective measure Market value of shares is calculated as the share
price multiplied by the number of outstanding shares.
Book value of assets fails to consider inflation, technological change and organizational capital
Book value ignores intangible assets, future liabilities (off-balance sheet)
We take the perspective of a finance manager of a firm to understand these issues.
Role of the Finance Manager
Stands between the firm's operations and the financial markets
If dividends are expected to grow at a constant rate, we will then value the share as follows: Po = Div1 / (r - g) This formula is popularly known as Gordon Growth Model
Ways firms can issue shares
Initial Public Oபைடு நூலகம்fering (IPO): It is the first public equity issue made by a company.
Public firms (those already listed on a stock exchange) can issue shares in different ways: Private placing Public issue
Why focus on Market Value?
This objective takes into account the valuable features of all other objectives
It may not be a perfect description of what firms seek to achieve
Disadvantages:
Double taxation: corporate and personal income tax Separation of ownership and control leads to agency
problems between managers and shareholders
What is (Corporate) Financial Management?
Financial Management primarily addresses the following three questions:
1. What long-term investments should the firm engage in? 2. How can the firm raise the money for the investments? 3. How much short-term cash flow does a company need?
Different forms of firms
Firms are usually classified according to their form of ownership: Sole proprietorship
Partnership Corporation
Typical Features of a Corporation
ADVANCE FINANCIAL MANAGEMENT
Dr. R. Kabir
Department of Finance, Tilburg University,
The
Netherlands
Teaching:
Corporate Finance / Financial Management
Empirical Corporate Finance
Finance is usually concerned with the way in which funds for a firm are raised and invested
Finance consists of four interrelated areas:
Corporate Finance (Financial Management) Investments (Asset Pricing) Financial Markets (Money and Capital Markets) Banking
Internal and External sources How much of the earnings should be retained? How much should be financed by Equity, Debt (Bank debt, Bonds), Warrants, Convertibles, etc?
Book value is not a forward looking measure.
Sources of Financing
Short-term and Long-term sources How much short-term cash flow does a company need to pay its bills? How much long-term cash flow does a company need to pay for its investments?
Role of the Financial Manager
(2)
Firm's operations
Financial manager
(1)
Financial
(4a)
markets
(3)
(4b)
(1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (4b) Cash returned to investors
Seminar in Finance
Research:
Corporate finance, Corporate governance, Financial market regulation
Internet address: www.tilburguniversity.nl
What is Finance?
Involved with the flow of cash from investors to the firm and back to the investors again
Involved with the use of cash to invest in firm's real assets
Valuation of a common share
PV
3.00 (1.12)1
3.24 (1.12)2
3.50 94.48 (1.12)3
PV $75.00
Valuation of a common share
If we forecast no growth of dividend of $3, and
P0
Div1 (1 r)1
Div2 (1 r)2
...
DivH (1
PH r)H
Valuation of a common share
If we expect no growth of dividends, and plan to hold the share indefinitely, we will then value the share as follows: Po = Div / r
➢General Cash Offer ➢Rights Offering
Valuation of a common share
1. Dividend Valuation Model:
Share price equals the present value of all expected future dividends.
Objectives / Goals of a business
Popular objectives Maximisation of (accounting) profit Maximisation of sales Maximisation of return on investment Survival Stability Growth