all rights reservedintro & chapter 11 corporate finance fin 335 introduction & chapter1 dr....

All Rights Reserved Intro & Chapter 1 1

Corporate Finance Fin 335Introduction & Chapter1

Dr. David P. EchevarriaUniversity of North Carolina – Wilmington

Cameron School of BusinessSpring, 2013

All Rights Reserved Intro & Chapter 1

Tips on getting through the CF course

A. Skim read the assignments before class1. Finance is a very precise set of procedures

and formulas which if not followed leads to poor analysis and incorrect answers.

2. Reading the material the night before the exam will invariably lead to a poor grade.

B. Keep up with the homework as assigned. 1. Practice helps to understand 2. Practice also helps with exams.


Tips on getting through the CF course

C. More tips on getting through finance1. Don’t spend time trying to memorize formulas.

• Understanding concepts is much more important• Formula sheet will be provided with each exam• Doing the homework helps to understand how the concepts

are applied to solving finance problems.

2. Learn to use a financial calculator (TI BA II +)• You’ll be taught how to analyze: car leasing deals,

mortgages, retirement planning, and other wealth-relevant analysis.


General Information

A. Attendance1. Finance lectures involve lots of material. Missing

classes results in poor exam performance.

B. Class Participation1. Finance is one of the most difficult courses you will

take. ASK QUESTIONS!2. That’s why corporations pay some of the highest

salaries to those who have mastered the finer points of financial analysis & management.


General Information

C. Course Syllabi and Lecture Notes1. My UNCW web page:

http://www.csb.uncw.edu/people/echevarriad/• Course Related Information• Course notes require Adobe Reader• Hyperlinks to business related web sites.

D. Email1. I use email to communicate important

information to students. Make certain your email account is able to receive mail.


A Thought on Exams

A. Things Happen!1. Take the responsible approach – keep up with

the work (reading and homework)2. Email me before the exam – we’ll work

something out.3. Failure to do so means you take Version 2

(the nightmare version).

All Rights Reserved Intro & Chapter 1 7

Overview of Business FinanceChapter 1

Goals of Financial ManagersFunctions of Financial Management

Types of Business Organizations


What’s this course about?

A. This course is about how companies manage their capital assets and liabilities.

1. Cash and Cash Equivalents, Receivables, and Inventory

2. Plant, Property, and Equipment investments3. Short- and Long-term debt4. Taxes (Federal, State, Foreign)


What’s this course about?

B. This course is also about how companies analyze their performance

1. Profitability: Controlling Costs2. Asset Management: Cash, Receivables,

Inventory, Physical Assets3. Capital Structure: mix of debt and equity

– Maintain adequate solvency


Goals of Financial ManagersA. Maximizing Stockholder Wealth.

1. Maximize stock price consistent with…

2. Minimize risk (reduce volatility of earnings)

B. Earn Economic Profits.1. Economic Profit is a cash-basis concept.2. Economic profits = Accounting Profits minus

Opportunity Cost of Invested Capital.OCIC = what you could [or must] earn elsewhere


Functions of Financial Management

A. Investment/Capital Budgeting Decisions1. Selecting from among competing investment choices.

2. Allocating capital to value enhancing projects.

B. Financing Decisions1. Tapping capital markets.2. Capital structure decisions.3. Working capital management (WCM).

C. Dividend Policy1. Retention versus payout.2. Tax considerations.


BUSINESS ORGANIZATIONS

A. Sole proprietorships1. Maximum personal liability.2. 10% of total sales, 25% of total profits (USA).3. Limited access to financial markets.

B. Partnerships1. Personal liability depends on circumstances;2. 10% of total sales, 10% of total profits.3. Partnership articles are very important!

C. Corporations1. Minimum personal liability to providers of capital.2. 80% of total sales; 65% of total profits.


Agency and Ethics

• Agency– Dealing with manager – owner conflicts– Control via contracts, annual meetings

• Corporate Ethics– SEC and State Regulatory oversight– GAAP vs. Cleverly Rigged Accounting Ploys– Sarbanes-Oxley (2002)


Homework Assignment

A. When is a stock’s price considered to be in equilibrium?

B. Job #1 for managers is maximizing the value of the firm. How do they accomplish this task?

C. What are the Three major forms of business organization? What are the principal advantages/disadvantages?

all rights reservedintro & chapter 11 corporate finance fin 335 introduction & chapter1 dr....

Documents