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Chapter 1

Introduction to Corporate Finance


Key Concepts and Skills
 Know the basic types of financial management
decisions and the role of the Financial Manager

 Know the financial implications of the various forms of


business organization

 Know the goal of financial management

 Understand the conflicts of interest that can arise


between owners and managers

 Understand the various types of financial markets


Chapter Outline
1.1 What is Corporate Finance?
1.2 The Corporate Firm
1.3 The Goal of Financial Management
1.4 The Agency Problem and Control of the
Corporation
1.5 Financial Markets
1.1 What is Corporate Finance?
Corporate Finance addresses the following
three questions:
• What long-term investments should the firm
choose?
• How should the firm raise funds for the selected
investments?
• How should short-term assets be managed and
financed?
Balance Sheet Model of the Firm
Total Value of Assets: Total Firm Value to Investors:
Current
Liabilities
Current
Assets Long-Term
Debt

Fixed Assets
1 Tangible
Shareholders’
2 Intangible Equity
The Capital Budgeting Decision
Current
Liabilities
Current
Assets Long-Term
Debt

Fixed Assets
What long-term
1 Tangible investments
Shareholders’
should the firm
2 Intangible Equity
choose?
The Capital Structure Decision
Current
Liabilities
Current
Assets Long-Term
How should the Debt
firm raise funds
for the selected
Fixed Assets
investments?
1 Tangible Shareholders’
2 Intangible Equity
Short-Term Asset Management
Current
Liabilities
Current
Net
Assets Working Long-Term
Capital Debt

How should
Fixed Assets
short-term assets
1 Tangible be managed and
financed? Shareholders’
2 Intangible Equity
Capital Structure
The value of the firm can be
thought of as a pie.
The goal of the manager is 70%50%30%
25%
to increase the size of the DebtDebt
Equity
pie.
75%
50%
The Capital Structure Equity
decision can be viewed as
how best to slice the pie.

If how you slice the pie affects the size of the


pie, then the capital structure decision matters.
The Financial Manager
The Financial Manager’s primary goal is to
increase the value of the firm by:
• Selecting value creating investment projects

• Making smart financing decisions


Hypothetical Organization Chart
Board of Directors

Chairman of the Board and


Chief Executive Officer (CEO)

President and Chief


Operating Officer (COO)

Vice President and


Chief Financial Officer (CFO)

Treasurer Controller

Cash Manager Credit Manager Tax Manager Cost Accounting

Capital Expenditures Financial Planning Financial Accounting Data Processing


從財務角度來看公司的組織架構
董事會(董事長)

總經理 (首席執行長,CEO)

行銷副總 財務副總(首席財務長, CFO) 生產副總

財務長 主計長

財務規劃 融資與 營運資金 成本會計 財務會計 稅務部門


與風險管理 投資 管理
The Firm and the Financial Markets
Firm Firm issues securities (A) Financial
markets
Invests
Retained
in assets cash flows (F)
(B)
Short-term debt
Current assets Cash flow Dividends and Long-term debt
Fixed assets from firm (C) debt payments (E)
Equity shares

Taxes (D)

The cash flows from


Ultimately, the firm
the firm must exceed
must be a cash Government
the cash flows from
generating activity.
the financial markets.
1.2 The Corporate Firm
 The corporate form of business is the
standard method for solving the problems
encountered in raising large amounts of cash.
 However, businesses can take other forms.
Forms of Business Organization
 The Sole Proprietorship
 The Partnership
 General Partnership
 Limited Partnership
 The Corporation
企業的組織型態
 企業組織型態的種類
 獨資 (Sole Proprietorship)
 合夥 (Partnership)
 公司 (Corporation)
 組織型態的選擇考量
 稅賦
 所有權轉移
 對外籌資能力
 其他 ( 例如成立所需花費,預期企業規模等 )
獨資與合夥
 獨資:一人擁有的非公司型企業
 合夥:兩人或兩人以上擁有的非公司型企

 優點
 容易成立,所需資本低
 法令管制少
 獲利由獨資業主獨享或由合夥人分享
 缺點
 對外籌資不易
 業主有無限清償 (Unlimited Liability) 責任
 組織的生命有限;所有權移轉不易
公司
 依「公司法」組織、登記、成立之社團法

 公司是一個法人,但是與自然人一樣享有
權利及並盡責任
 公司型態可分為
 無限公司:由二人以上股東組成,股東對公司
債務有無限清償責任
 有限公司:由一人以上股東組成,股東就其出
資額對公司負清償責任
 兩合公司:由一人以上無限責任股東,與一人
以上有限責任股東所組成
 股份 有限 公司 :由二人以上股東組成(政府或
法人股東只需一人),股東就其所認股份對公
司負清償責任
成立公司的優、缺點
 優點
 對外籌資容易
 所有權轉讓容易
 有限清償 (Limited Liability) 責任
 缺點
 成立手續較繁瑣,組織複雜
 法令管制較多
A Comparison
Corporation Partnership

Liquidity Shares can be easily Subject to substantial


exchanged restrictions

Voting Rights Usually each share gets one General Partner is in charge;
vote limited partners may have
some voting rights

Taxation Double Partners pay taxes on


distributions
Reinvestment and dividend Broad latitude All net cash flow is
payout distributed to partners

Liability Limited liability General partners may have


unlimited liability; limited
partners enjoy limited
liability
Continuity Perpetual life Limited life
1.3 The Goal of Financial Management
 What is the correct goal?
 Maximize profit?
 Minimize costs?
 Maximize market share?
 Maximize shareholder wealth?
公司經營的目標及重要決策
目標
♣ 股東財富極大化或股票價格極大

重要決策項目包括
♣ 投資決策
♣ 融資決策
♣ 股利決策
QUIZ
為何「利潤極大化」不適合作為公司
經營目標?
QUIZ
為何「利潤極大化」不適合作為公司
經營目標?
Ans:
目標不明確:到底是稅前盈餘,營業淨利,抑或是每
股盈餘?針對不同的定義,企業努力的方向就可能
不一樣
時點不明確:到底是當年度利潤,抑或是未來一段時
間的平均利潤?若以極大化當年度利潤為目標,是
否有可能是以削弱未來利潤來達成?
QUIZ
為何「市佔率極大化」不適合作為公
司經營目標?
QUIZ
為何「市佔率極大化」不適合作為公
司經營目標?
Ans:
要擴大市佔率,公司可用降低產品銷售價格的
方式來達成,但是削價競爭未必能提昇公司的獲利
,反而可能造成虧損,傷及股東權益。此外,削價
競爭也會招致同業的反擊,影響公司長遠的發展
公司經營的目標、重要決策及決策考量重點

股票價格極大化 目標

投資決策 融資決策 股利決策 決策


(折現率)
門檻利率

報 融 融到 何 支
酬 資 資期 種 付
率 工 工期 形 多 考量重點
具 具限 式 少


最有影響力的五大財務理論

 馬可維茲 (1952) 投資組合理論


 墨迪格里阿尼 / 米勒 (1958&1963) M&M
理論
 夏普 / 林特納 / 莫辛 (1964) 資本資產定價
理論
 法瑪 (1965) 效率市場假說
 布萊克 / 修茲 / 莫頓 (1973) 選擇權評價理

1.4 The Agency Problem ( 補充資料

 Agency relationship
 Principal hires an agent to represent his/her interest
 Stockholders (principals) hire managers (agents) to
run the company
 Agency problem
 Conflict of interest between principal and agent
Managerial Goals
 Managerial goals may be different from
shareholder goals
 Expensive perquisites

 Increased growth and size are not necessarily


equivalent to increased shareholder wealth
Managing Managers
 Managerial compensation
 Incentivescan be used to align management and
stockholder interests
 The incentives need to be structured carefully to
make sure that they achieve their intended goal
 Corporate control
 The
threat of a takeover may result in better
management
1.5 Financial Markets
 Primary Market
 Issuance of a security for the first time
 Secondary Markets
 Buying and selling of previously issued securities
 Securities may be traded in either a dealer or
auction market
 NYSE
 NASDAQ
Financial Markets

Stocks and
Investors
Bonds
Firms securities
Money Bob Sue
money

Primary Market
Secondary
Market
Quick Quiz
 What
are the three basic questions Financial
Managers must answer?

 What is the goal of financial management?

 What are agency problems, and why do they exist


within a corporation?

 What is the difference between a primary market


and a secondary market?