1、Click here for title McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-1 Corporate Finance Ross Westerfield Jaffe Sixth Edition Sixth Edition 1 Chapter One Introduction to Corporate Finance McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. A
2、ll rights reserved. 1-2 Chapter Outline 1.1 What is Corporate Finance? 1.2 Corporate Securities as Contingent Claims on Total Firm Value 1.3 The Corporate Firm 1.4 Goals of the Corporate Firm 1.5 Financial Markets 1.6 Outline of the Text McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies,
3、 Inc. All rights reserved. 1-3 What is Corporate Finance? Corporate Finance addresses the following three questions: 1. What long-term investments should the firm engage in? 2. How can the firm raise the money for the required investments? 3. How much short-term cash flow does a company need to pay
4、its bills? McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 The Balance-Sheet Model of the Firm Current Assets Fixed Assets 1 Tangible 2 Intangible Total Value of Assets: Shareholders Equity Current Liabilities Long-Term Debt Total Firm Value to Investors:
5、 McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 The Balance-Sheet Model of the Firm Current Assets Fixed Assets 1 Tangible 2 Intangible Shareholders Equity Current Liabilities Long-Term Debt What long- term investments should the firm engage in? The Capi
6、tal Budgeting Decision McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 The Balance-Sheet Model of the Firm How can the firm raise the money for the required investments? The Capital Structure Decision Current Assets Fixed Assets 1 Tangible 2 Intangible Sh
7、areholders Equity Current Liabilities Long-Term Debt McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 The Balance-Sheet Model of the Firm How much short- term cash flow does a company need to pay its bills? The Net Working Capital Investment Decision Net W
8、orking Capital Shareholders Equity Current Liabilities Long-Term Debt Current Assets Fixed Assets 1 Tangible 2 Intangible McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Capital Structure The value of the firm can be thought of as a pie. The goal of the m
9、anager is to increase the size of the pie. The Capital Structure decision can be viewed as how best to slice up a the pie. If how you slice the pie affects the size of the pie, then the capital structure decision matters. 50% Debt 50% Equity 25% Debt 75% Equity 70% Debt 30% Equity McGraw-Hill/Irwin
10、Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 Hypothetical Organization Chart Chairman of the Board and Chief Executive Officer (CEO) Board of Directors President and Chief Operating Officer (COO) Vice President and Chief Financial Officer (CFO) Treasurer Controller Cash
11、 Manager Capital Expenditures Credit Manager Financial Planning Tax Manager Financial Accounting Cost Accounting Data Processing McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-10 The Financial Manager To create value, the financial manager should: 1. Try t
12、o make smart investment decisions. 2. Try to make smart financing decisions. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-11 Cash flow from firm (C) The Firm and the Financial Markets Taxes (D) Firm Government Firm issues securities (A) Retained cash flo
13、ws (F) Invests in assets (B) Dividends and debt payments (E) Current assets Fixed assets Financial markets Short-term debt Long-term debt Equity shares Ultimately, the firm must be a cash generating activity. The cash flows from the firm must exceed the cash flows from the financial markets. McGraw-
14、Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-12 1.2 Corporate Securities as Contingent Claims on Total Firm Value The basic feature of a debt is that it is a promise by the borrowing firm to repay a fixed dollar amount of by a certain date. The shareholders cla
15、im on firm value is the residual amount that remains after the debtholders are paid. If the value of the firm is less than the amount promised to the debtholders, the shareholders get nothing. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-13 Debt and Equi
16、ty as Contingent Claims $F $F Payoff to debt holders Value of the firm (X) Debt holders are promised $F. If the value of the firm is less than $F, they get the whatever the firm if worth. If the value of the firm is more than $F, debt holders get a maximum of $F. $F Payoff to shareholders Value of t
17、he firm (X) If the value of the firm is less than $F, share holders get nothing. If the value of the firm is more than $F, share holders get everything above $F. Algebraically, the bondholders claim is: Min$F,$X Algebraically, the shareholders claim is: Max0,$X $F McGraw-Hill/Irwin Copyright 2002 by
18、 The McGraw-Hill Companies, Inc. All rights reserved. 1-14 Combined Payoffs to Debt and Equity $F $F Combined Payoffs to debt holders and shareholders Value of the firm (X) Debt holders are promised $F. Payoff to debt holders Payoff to shareholders If the value of the firm is less than $F, the share
19、holders claim is: Max0,$X $F = $0 and the debt holders claim is Min$F,$X = $X. The sum of these is = $X If the value of the firm is more than $F, the shareholders claim is: Max0,$X $F = $X $F and the debt holders claim is: Min$F,$X = $F. The sum of these is = $X McGraw-Hill/Irwin Copyright 2002 by T
20、he McGraw-Hill Companies, Inc. All rights reserved. 1-15 1.3 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. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill C
21、ompanies, Inc. All rights reserved. 1-16 Forms of Business Organization The Sole Proprietorship The Partnership General Partnership Limited Partnership The Corporation Advantages and Disadvantages Liquidity and Marketability of Ownership Control Liability Continuity of Existence Tax Considerations M
22、cGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-17 A Comparison of Partnership and Corporations Corporation Partnership Liquidity Shares can easily be exchanged. Subject to substantial restrictions. Voting Rights Usually each share gets one vote General Part
23、ner is in charge; limited partners may have some voting rights. Taxation Double Partners pay taxes on distributions. Reinvestment Broad latitude All net cash flow is distributed to partners. Liability Limited liability General partners may have unlimited liability. Limited partners enjoy limited lia
24、bility. Continuity Perpetual life Limited life McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-18 1.4 Goals of the Corporate Firm The traditional answer is that the managers of the corporation are obliged to make efforts to maximize shareholder wealth. McGr
25、aw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-19 The Set-of-Contracts Perspective The firm can be viewed as a set of contracts. One of these contracts is between shareholders and managers. The managers will usually act in the shareholders interests. The share
26、holders can devise contracts that align the incentives of the managers with the goals of the shareholders. The shareholders can monitor the managers behavior. This contracting and monitoring is costly. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-20 Mana
27、gerial Goals Managerial goals may be different from shareholder goals Expensive perquisites Survival Independence Increased growth and size are not necessarily the same thing as increased shareholder wealth. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2
28、1 Separation of Ownership and Control Board of Directors Management Assets Debt Equity Shareholders Debtholders McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-22 Do Shareholders Control Managerial Behavior? Shareholders vote for the board of directors, who
29、 in turn hire the management team. Contracts can be carefully constructed to be incentive compatible. There is a market for managerial talentthis may provide market discipline to the managersthey can be replaced. If the managers fail to maximize share price, they may be replaced in a hostile takeove
30、r. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-23 1.5 Financial Markets Primary Market When a corporation issues securities, cash flows from investors to the firm. Usually an underwriter is involved Secondary Markets Involve the sale of used securities
31、from one investor to another. Securities may be exchange traded or trade over- the-counter in a dealer market. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-24 Financial Markets Firms Investors Secondary Market money securities Sue Bob Stocks and Bonds Mo
32、ney Primary Market McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-25 1.6 Outline of the Text I.Overview II.Value and Capital Budgeting III. Risk IV. Capital Structure and Dividend Policy V.Long-Term Financing VI. Options, Futures and Corporate Finance VII.
33、 Financial Planning and Short-Term Finance VIII.Special Topics McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-26 Corporate Finance Ross Westerfield Jaffe Sixth Edition Sixth Edition 2 Chapter Two Accounting Statements and Cash Flow McGraw-Hill/Irwin Copyri
34、ght 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-27 Chapter Outline 2.1 The Balance Sheet 2.2 The Income Statement 2.3 Net Working Capital 2.4 Financial Cash Flow 2.5 Summary and Conclusions McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-
35、28 Sources of Information Annual reports Wall Street Journal Internet NYSE () Nasdaq () Text ( SEC EDGAR 10K invest the remaining $55,000; consume $60,000 next year. $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Consumption at t+1 McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies,
36、 Inc. All rights reserved. 1-64 Intertemporal Consumption Opportunity Set $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Consumption today Consumption at t+1 Another choice available is to consume $60,000 now; invest the remaining $35,000; c
37、onsume $38,500 next year. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-65 Taking Advantage of Our Opportunities $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Consumption today Consumption at t+1
38、 A persons preferences will tend to decide where on the opportunity set they will choose to be. Ms. Patience Ms. Impatience McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-66 Changing Our Opportunities $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $0
39、 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Consumption today Consumption at t+1 A rise in interest rates will make saving more attractive and borrowing less attractive. Consider an investor who has chosen to consume $40,000 now and to consume $60,000 next year. McGraw-Hill/Irwin Copyright 20
40、02 by The McGraw-Hill Companies, Inc. All rights reserved. 1-67 3.3 The Competitive Market In a competitive market: Trading is costless. Information about borrowing and lending is available There are many traders; no individual can move market prices. There can be only one equilibrium interest rate
41、in a competitive marketotherwise arbitrage opportunities would arise. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-68 3.4 The Basic Principle The basic financial principle of investment decision making is this: An investment must be at least as desirable
42、 as the opportunities available in the financial markets. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-69 3.5 Practicing the Principle: A Lending Example Consider an investment opportunity that costs $50,000 this year an provides a certain cash flow of $
43、54,000 next year. Is this a good deal? It depends on the interest rate available in the financial markets. The investment has an 8% return, if the interest rate available elsewhere is less than this, invest here. Cash inflows Time Cash outflows 0 1 -$50,000 $54,000 McGraw-Hill/Irwin Copyright 2002 b
44、y The McGraw-Hill Companies, Inc. All rights reserved. 1-70 3.6 Illustrating the Investment Decision Consider an investor who has an initial endowment of income of $40,000 this year and $55,000 next year. Suppose that he faces a 10-percent interest rate and is offered the following investment. Cash
45、inflows Time Cash outflows 0 1 -$25,000 $30,000 McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-71 3.6 Illustrating the Investment Decision $0 Consumption today Our investor begins with the following opportunity set: endowment of $40,000 today, $55,000 next
46、 year and a 10% interest rate. One choice available is to consume $15,000 now; invest the remaining $25,000 in the financial markets at 10%; consume $82,500 next year. $0 $99,000 Consumption at t+1 $55,000 $82,500 $40,000 $15,000 $90,000 McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies,
47、 Inc. All rights reserved. 1-72 3.6 Illustrating the Investment Decision $0 Consumption today A better alternative would be to invest in the project instead of the financial markets. He could consume $15,000 now; invest the remaining $25,000 in the project at 20%; consume $85,000 next year. $0 $99,0
48、00 Consumption at t+1 $55,000 $82,500 $40,000 $85,000 $15,000 $90,000 With borrowing or lending in the financial markets, he can achieve any pattern of cash flows he wantsany of which is better than his original opportunities. McGraw-Hill/Irwin Copyright 2002 by The McGraw-Hill Companies, Inc. All rights rese
