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Tutorial Tasks Selected problem sets, 10%, Sessions 2-6, 8 & 9-13 - No makeup marks in case of absence.
Quizzes - MCQs with justification/Problems during lecture time, 20%, Sessions
4 & 11 - No make-up quizzes will be allowed
Mid-Session Test 20%, covers all the topics till end of week 5 and includes
essay questions, problems, & MCQs , Week 6 during the lecture
Final Exam MCQs, problem-solving and/or short essay questions, 50%, during
the official examination period
SATISFACTORY COMPLETION
REQUIREMENTS
"You are expected to complete all assessments tasks for this
subject. In addition, you must achieve a total mark of 50%
or over and obtain a minimum of 50% in the final
examination. Students who do not meet these minimum
performance level requirements will be given a Fail grade
of TF (Technical Fail) grade on their Academic Transcript,
in accordance with the General Course Rules."
Introduction to CORPORATE
FINANCE
Finance : MANAGING MONEY
Trade-off between the present and future
In a business context:
raise money
invest money
reinvest profits
distribute them back to investors.
WHAT IS CORPORATE
FINANCE?
Imagine that you were to start your own business. No matter what type
you started, you would have to answer the following three questions
in some form or another:
What long-term investments should you take on? That is, what lines
of business will you be in and what sorts of buildings, machinery,
and equipment will you need?
Where will you get the long-term financing to pay for your
investment? Will you bring in other owners or will you borrow the
money?
How will you manage your everyday financial activities such as
collecting from customers and paying suppliers?
A Sample Simplified
Organizational Chart
FINANCIAL MANAGEMENT
DECISIONS
CAPITAL BUDGETING - long-term investments.
The process of planning and managing a firms long-term investments is called capital
budgeting.
In capital budgeting, the financial manager tries to identify investment opportunities
The types of investment opportunities - depend in part on the nature of the firms business
Example: Wal-Mart, Oracle or Microsoft.
Regardless of the specific nature of an opportunity under consideration, financial managers
must be concerned:
not only with how much cash they expect to receive
but also with when they expect to receive it and how likely they are to receive it.
Evaluating the size, timing, and risk of future cash flows is the essence of capital
budgeting.
FINANCIAL MANAGEMENT
DECISIONS
CAPITAL STRUCTURE
A firms capital structure (or financial structure) is the specific mixture of longterm debt and equity the firm uses to finance its operations.
The financial manager has two concerns in this area.
First, how much should the firm borrow? That is, what mixture of debt and equity
is best? The mixture chosen will affect both the risk and the value of the firm.
Second, what are the least expensive sources of funds for the firm? pie diagram
Firms have a great deal of flexibility in choosing a financial structure
In addition to deciding on the financing mix, the financial manager has to decide
exactly how and where to raise the money.
FINANCIAL MANAGEMENT
DECISIONS
WORKING CAPITAL MANAGEMENT
The term working capital refers to a firms short-term assets, such as inventory, and its
short-term liabilities, such as money owed to suppliers.
Managing the firms working capital is a day-to-day activity
This involves a number of activities related to the firms receipt and disbursement of cash.
How much cash and inventory should we keep on hand?
Should we sell on credit? If so, what terms will we offer
How will we obtain any needed short-term financing? Will we purchase on credit or will
we borrow in the short term and pay cash?
If we borrow in the short term, how and where should we do it?
Disadvantages:
Unlimited liability
General partnership
Limited partnership
Limited liability
Unlimited life
Disadvantages:
Double taxation (income taxed at the corporate rate and then dividends
taxed at the personal rate)
If we assume that stockholders buy stock because they seek to gain financially, then the
answer is obvious: Good decisions increase the value of the stock, and poor decisions
decrease the value of the stock.
Maximize the market value of the existing owners equity.
good financial decisions increase the market value of the owners equity and poor financial
decisions decrease i
keep in mind that the stockholders in a firm are residual owners.
Other stakeholders : employees, suppliers, and creditors
Finally, our goal does not imply that the financial manager should take illegal or unethical
actions in the hope of increasing the value of the equity in the firm.
SARBANESOXLEY (2002)
A financial market, like any market, is just a way of bringing buyers and sellers together. In financial
markets, it is debt and equity securities that are bought and sold. Financial markets differ in detail, however.
The most important differences concern the types of securities that are traded, how trading is conducted, and
who the buyers and sellers are.