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Corporate Finance

Corporate Finance. Lecture 1. Topics. Change of schedule: Fridays from 18:30 – 19:50 to 11:00 – 12:20 Practical information about this course The firm and the financial managers. About the Course.

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Corporate Finance

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  1. Corporate Finance Lecture 1

  2. Topics • Change of schedule: • Fridays from 18:30 – 19:50 to 11:00 – 12:20 • Practical information about this course • The firm and the financial managers

  3. About the Course • Objective: to introduce basic principles of finance and practical tools for financial decisions. • Text book: Corporate Finance, Ross, Westerfield and Jaffe, 7th edition • Syllabus and notes online: http://docentes.fe.unl.pt/~qdai/teaching/master/corpfin2009.html • Office hour: Tuesday 16:00 to 17:00, Room 352 • Email: qinglei.dai@fe.unl.pt

  4. Evaluation • Class participation (10%) • Exercises and Case studies (40%) • 2 cases and three online exercises • Moodle password: finance • Case study group: • 3-4 students per group. • The groups have to be registered by April 14 with TA. Anyone who fails to register has to do the case study ALONE. • Final exam (50%) • May 19

  5. The firm and the financial managers • The firm • What do we learn from this course? • The balance sheet model of corporate finance • The role of a financial manager • What is a financial manager • The role

  6. Financial Accounting Capital Expenditures Financial Planning Cost Accounting Data Processing Credit Manager Cash Manager Tax Manager Board of Directors Controller Treasurer Chairman of the Board and Chief Executive Officer (CEO) Vice President and Chief Financial Officer (CFO) President and Chief Operating Officer (COO) Organization Chart

  7. (2) (1) (4a) (4b) (3) (1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (4b) Cash returned to investors The Role of The Financial Manager Firm's Financial operations Investors Manager Real assets

  8. Goals of the firm • Shareholders desire wealth maximization • Do managers maximize shareholder wealth? • “Agency Problems”

  9. Goals of the firm Agency Problem Solutions 1 - Compensation plans 2 - Board of Directors 3 - Takeovers 4 - Specialist Monitoring 5 - Auditors

  10. The Firm • Purpose of the firm: value creation • Does value maximization justify unethical behavior • Enron • More suggestions? • Two aspects of corporate finance: • Raise funding • Investment • Balance sheet model of corporate finance

  11. Total Assets: Liabilities and Equity Current Liabilities Current Assets Long-Term Debt Fixed Assets 1 Tangible 2 Intangible Shareholders’ Equity The Balance-Sheet

  12. Total Assets: Liabilities and Equity Current Liabilities Current Assets Long-Term Debt Fixed Assets 1 Tangible 2 Intangible Shareholders’ Equity The Balance-Sheet What long-term investments should the firm engage in?

  13. The Role of The Financial Manager • Capital Budgeting Decision • also called the Investment Decision Intangible Assets Coca-Cola brand name Tangible Assets Portugal Telecom @ 3,585 million Euros

  14. Total Assets: Liabilities and Equity Current Liabilities Current Assets Long-Term Debt Fixed Assets 1 Tangible 2 Intangible Shareholders’ Equity The Balance-Sheet How can the firm raise the money for the required investments? 1. Financing Decision 2. Capital Structure

  15. Total Assets: Liabilities and Equity Current Liabilities Current Assets Long-Term Debt Fixed Assets 1 Tangible 2 Intangible Shareholders’ Equity The Balance-Sheet Net working capital management

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