transparency acetates to accompany fundamentals of corporate finance fifth edition stephen a. ross...
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TRANSPARENCY ACETATESto accompany
FUNDAMENTALS OFFUNDAMENTALS OFCORPORATE FINANCECORPORATE FINANCE
Fifth Edition
Stephen A. RossRandolph W. Westerfield
Bradford D. Jordan
Prepared byThomas H. Eyssell CLICK MOUSE OR HIT
SPACEBAR TO ADVANCE
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
Chapter 1 Introduction to Corporate Finance
Chapter 2 Financial Statements, Taxes, and Cash Flow
Chapter 3 Working with Financial Statements
Chapter 4 Long-Term Financial Planning and Growth
Chapter 5 Introduction to Valuation: The Time Value of Money
Chapter 6 Discounted Cash Flow Valuation
Chapter 7 Interest Rates and Bond Valuation
Chapter 8 Stock Valuation
Chapter 9 Net Present Value and Other Investment Criteria
Chapter 10 Making Capital Investment Decisions
Chapter 11 Project Analysis and Evaluation
Chapter 12 Some Lessons from Capital Market History
Chapter 13 Return, Risk, and the Security Market Line
Chapter 14 Cost of Capital
Table of Contents
Chapter 15 Raising Capital
Chapter 16 Financial Leverage and Capital Structure Policy
Chapter 17 Dividends and Dividend Policy
Chapter 18 Short-Term Finance and Planning
Chapter 19 Cash and Liquidity Management
Chapter 20 Credit and Inventory Management
Chapter 21 International Corporate Finance
Chapter 22 Risk Management: An Introduction to Financial Engineering
Chapter 23 Options and Corporate Securities
Chapter 24 Mergers and Acquisitions
Chapter 25 Leasing
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
Table of Contents (continued)
T1.1 Chapter Outline
Chapter 1Introduction to Corporate Finance
Chapter Organization
1.1 Corporate Finance and the Financial Manager
1.2 Forms of Business Organization
1.3 The Goal of Financial Management
1.4 The Agency Problem and Control of the Corporation
1.5 Financial Markets and the Corporation
1.6 Summary and Conclusions
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.2 The Four Basic Areas of Finance
The Four Basic Areas of Finance
Corporate Finance
Investments
Financial Institutions
International Finance
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 1999
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.3 A Simplified Organizational Chart (Figure 1.1)
Chairman of the Board andChief Executive Officer (CEO)
Board of Directors
President and ChiefOperations Officer (COO)
Vice PresidentMarketing
Vice PresidentFinance (CFO)
Vice PresidentProduction
Treasurer Controller
Cash Manager Credit Manager Tax ManagerCost AccountingManager
CapitalExpenditures
FinancialPlanning
FinancialAccountingManager
Data ProcessingManager
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.4 Forms of Business Organization
Organizational Forms Sole Proprietorship Partnership
General Partnership / Limited Partnership
CorporationLimited Liability Company
Legal ConsiderationsHow do owners’ roles differ across organizational
forms?
Economic ConsiderationsWhy are corporations generally larger than other forms of business?
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.5 International Corporations (Table 1.1)
Bayerische Germany Aktiengesellschaft Corporation Moterenwerke AG
Dornier GmBH Germany Gesellschaft mit Limited liability co.Beschrankter Haftung
Rolls-Royce PLC United Kingdom Public limited company Public limited co.
Shell UK Ltd. United Kingdom Limited Corporation
Unilever NV Netherlands Naamloze Vennootschap Joint stock co.
Fiat SpA Italy Societa per Azioni Joint stock co.
Volvo AB Sweden Aktiebolag Joint stock co.
Peugot SA France Societe Anonyme Joint stock co.
Type of Company
Company Country of Origin In Original Language Translated
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.6 The Goal of Financial Management
The Goal of Financial Management
What are firm decision-makers hired to do?
“General Motors is not in the business of making automobiles. General Motors is in the business of making money.”
--Alfred P. Sloan
Possible goals
Three equivalent goals of financial management:
Maximize shareholder wealth
Maximize share price
Maximize firm value
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.7 The Agency Problem
The Agency Problem
The agency relationship
Will managers work in the shareholders’ best interests?
Agency costs
Direct agency costs
Indirect agency costs
Control of the firm
How do agency costs affect firm value (and, therefore, shareholder wealth)?
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.8 Financial Markets
Financial Markets
What is the role of financial markets in corporate finance?
Cash flows to and from the firm
Money markets and capital markets
Primary vs. secondary markets
How do financial markets benefit society?
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.9 Cash Flows Between the Firm and the Financial Markets (Figure 1.2)
Total Value ofFirm’s Assets
Total Value of the Firmto Investors in
the Financial Markets
B. Firm invests in assets
Current AssetsFixed Assets
C. Cash flow from firm’s assets
D. Government
E. Retained cash flows
A. Firm issues securities
F. Dividends and
debt payments
FinancialMarkets
Short-term debtLong-term debtEquity shares
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000
T1.10 Chapter 1 Quick Quiz
Quick Quiz
1. Who performs the financial management function in the typical corporation?
2. What are the major advantages and disadvantages of the corporate form of organization?
3. Why is shareholder wealth maximization a more appropriate goal than profit maximization?