Advanced Corporate Finance Lahore School of Economics

Principles of Corporate Finance

Ninth Edition

Introduction & Review of Concepts in Corporate Finance

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Review of Corporate Finance

Corporate Finance addresses the following three questions: What long-term investments should the firm engage in? How can the firm raise money for the required investments? How much short-term cash flow does a company need to pay its bills?

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Advanced Corporate Finance Lahore School of Economics

The BalanceBalance-Sheet Model of the Firm

Total Value of Assets: Total Firm Value to Investors: Current Liabilities C Current t Assets A t

Long-Term Debt

Fixed Assets 1 Tangible 2 Intangible Shareholders Equity

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

The BalanceBalance-Sheet Model of the Firm

The Capital Budgeting Decision
(Investment Decision) Current Assets Long-Term Debt Current Liabilities

Fixed Assets 1 Tangible 2 Intangible

What longterm investments should the firm engage in?

Shareholders Equity

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Advanced Corporate Finance Lahore School of Economics

The BalanceBalance-Sheet Model of the Firm

The Capital Structure Decision
(Financing Decision) Current Assets Long-Term Debt Current Liabilities

Fixed Assets 1 Tangible 2 Intangible

How can the firm raise the money for the required investments?

Shareholders Equity

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

The BalanceBalance-Sheet Model of the Firm

The Net Working Capital Investment Decision
(Financial Decision) ( Current Assets Net Working Capital Long-Term Debt Current Liabilities

Fixed Assets 1 Tangible 2 Intangible

How much short-term cash flow does a company need to pay its bills?

Shareholders Equity

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Advanced Corporate Finance Lahore School of Economics

Ownership and Control

Board of Directors Debtholder rs Shareholde ers Management

Assets

Debt Equity

McGraw Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved