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 Long-Term Debt

Current Assets

Fixed Assets 1 Tangible 2 Intangible Shareholders’ Equity

The Capital Budgeting Decision
Current Assets Current Liabilities Long-Term Debt

Fixed Assets 1 Tangible 2 Intangible

What long-term investments should the firm choose?

Shareholders’ Equity

The Capital Structure Decision
Current Assets Current Liabilities Long-Term Debt

How should the firm raise funds for the selected Fixed Assets investments? 1 Tangible
2 Intangible

Shareholders’ Equity

Short-Term Asset Management
Current Assets Current Liabilities
Net Working Capital

Long-Term Debt

Fixed Assets 1 Tangible 2 Intangible

How should short-term assets be managed and financed?

Shareholders’ Equity

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. The Capital Structure decision can be viewed as how best to slice the pie. 70% 30% 25%50% DebtDebt Equity 75% 50% Equity

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
Capital Expenditures

Credit Manager Financial Planning

Tax Manager
Financial Accounting

Cost 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) 財務長
財務規劃 融資與 與風險管理 投資 營運資金 管理

生產副總

主計長
成本會計 財務會計 稅務部門

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

Financial markets

Ultimately, the firm must be a cash generating activity.

Government

The cash flows from the firm must exceed the cash flows from 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) 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 )

組織型態的選擇考量
   

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 業 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 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

缺點
  

公司
  

依「公司法」組織、登記、成立之社團法 人 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 成立手續較繁瑣,組織複雜 法令管制較多

缺點
 

A Comparison
Corporation Liquidity Shares can be easily exchanged Usually each share gets one vote Double Broad latitude Partnership Subject to substantial restrictions General Partner is in charge; limited partners may have some voting rights Partners pay taxes on distributions All net cash flow is distributed to partners General partners may have unlimited liability; limited partners enjoy limited liability Limited life

Voting Rights

Taxation Reinvestment and dividend payout Liability

Limited liability

Continuity

Perpetual 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 化

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

門檻利率 (折現率)

報 酬 率

融 資 工 具 組 合

融到 資期 工期 具限

何 種 形 式

支 付 多 少

考量重點

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 論

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
of interest between principal and agent

 Conflict

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
 Incentives

compensation

can 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
 The

control

threat of a takeover may result in better management

1.5 Financial Markets

Primary Market

Issuance of a security for the first time Buying and selling of previously issued securities Securities may be traded in either a dealer or auction market
 

Secondary Markets
 

NYSE NASDAQ

Financial Markets
Stocks and Bonds Money Bob Investors securities money Primary Market Secondary Market Sue

Firms

Quick Quiz
 What

are the three basic questions Financial Managers must answer? is the goal of financial management?

 What  What

are agency problems, and why do they exist within a corporation? is the difference between a primary market and a secondary market?

 What

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