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FINE 3010-01 Financial Management

FINE 3010-01 Financial Management. Instructor: Rogério Mazali Lecture 1: 09/09/2011. FINE 3010-01 Instructor: Rogério Mazali. Chapter 1: Goals and Governance of the Firm. Fundamentals of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Alan J. Marcus

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FINE 3010-01 Financial Management

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  1. FINE 3010-01Financial Management Instructor: RogérioMazali Lecture 1: 09/09/2011

  2. FINE 3010-01Instructor: RogérioMazali Chapter 1: Goals and Governance of the Firm Fundamentals of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Alan J. Marcus McGraw Hill/Irwin

  3. Investment and Financing Decisions • Investment Decisions: • Which projects are profitable? • How much is needed to complete the project? • How much to allocate to each unit within the project? • Financing Decisions: • How to raise the money needed for investment? • Family money, bank loans, partnerships, corporate debt, equity • If debt, how many bonds to issue? • If equity, how many shares to issue?

  4. (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 Investment assets Real assets

  5. What is a Corporation? • Corporation: public, permanent legal entity that is legally distinct from its owners • Separation between ownership and management: • Shareholders can sell their stock without necessarily affecting conduct of the corporation’s business; • If managers are fired and/or replaced, the corporation survives and its ownership structure is unaffected • Limited Liability: Owners cannot be held personally responsible for the corporation’s debts. • Owners are only liable up to the company’s assets. • Shareholders elect a Board of Directors: • Appoint top management positions; • Monitor their performance.

  6. What is a Corporation? • Types of Business Organizations • Sole Proprietorships • Partnerships • Corporations • Limited Liability Options • Limited Liability Partnerships • Limited Liability Companies • Professional Corporations

  7. What is a Corporation?

  8. FINE 3010-01Instructor: RogérioMazali Chapter 2: Financial Markets and Institutions Fundamentals of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Alan J. Marcus McGraw Hill/Irwin

  9. The Flow of Savings to Corporations • Money flow from investors to firms to fund investment • Not all money invested directly in the firm • Many stops: Money Financial Markets Financial Institutions

  10. The Flow of Savings to Corporations • Financial Markets: • Stock Markets (NYSE, AMEX, NASDAq) • Fixed-Income Market • Corporate Bonds • Bank Loans • Commodities • Derivatives (Options, Futures, etc.) • Foreign Exchange • Financial Intermediaries • Mutual Funds • Pension Funds • Hedge Funds • Commercial Banks • Investment Banks • Insurance Companies

  11. FinancialMarkets Financial markets Stock markets Fixed-income markets Money markets Markets for Commodities Foreign exchange Derivatives Corporation Investment in real assets Reinvestment Investors worldwide Financial Intermediaries Mutual Funds Pension funds Financial Institutions Banks Insurance companies

  12. Financial Markets Money Primary Markets: Initial Public Offerings (IPO) Over-the-Counter Markets: Corporate Bonds Secondary Markets: Secondary transactions

  13. Functions of Financial Markets and Institutions • Transporting cash across time: • Risk transfer and diversification • Liquidity: ability to turn investment back into cash when needed • Transaction cost reduction (Payment Mechanisms) • Information provided by financial markets: • Information about projects’ and assets’ qualities. • Expectations • Default risk • Firm value

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