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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

FINE 3010-01Financial Management

Instructor: RogérioMazali

Lecture 1: 09/09/2011

fine 3010 01 instructor rog rio mazali
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

investment and financing decisions
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?
slide5

(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

what is a corporation
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.
slide7

What is a Corporation?

  • Types of Business Organizations
    • Sole Proprietorships
    • Partnerships
    • Corporations
    • Limited Liability Options
      • Limited Liability Partnerships
      • Limited Liability Companies
      • Professional Corporations
fine 3010 01 instructor rog rio mazali1
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

the flow of savings to corporations
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

the flow of savings to corporations1
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
slide12

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

financial markets
Financial Markets

Money

Primary

Markets:

Initial Public Offerings (IPO)

Over-the-Counter

Markets:

Corporate Bonds

Secondary

Markets:

Secondary transactions

functions of financial markets and institutions
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