Introduction To Corporate Finance

1. Introduction To Corporate Finance

2. Key Concepts and Skills • Know the basic types of financial management decisions and the role of the financial manager財務管理決策基本問題 • Know the financial implications of the different forms of business organization不同企業組織 • Know the goal of financial management財務管理的目標 • Understand the conflicts of interest that can arise between owners and managers所有人和經理人可能產生的利益衝突 • Understand the various types of financial markets各種型態的金融市場

3. Chapter Outline • Corporate Finance and the Financial Manager • Forms of Business Organization • The Goal of Financial Management • The Agency Problem and Control of the Corporation • Financial Markets and the Corporation

4. Corporate Finance • Some important questions that are answered using finance • What long-term investments should the firm take on? • Where will we get the long-term financing to pay for the investment? • How will we manage the everyday financial activities of the firm?

5. Financial Manager • Financial managers try to answer some or all of these questions • The top financial manager within a firm is usually the Chief Financial Officer (CFO)首席財務長 • Treasurer財務長– oversees cash management, credit management, capital expenditures and financial planning • Controller會計長– oversees taxes, cost accounting, financial accounting and data processing

6. Financial Management Decisions • Capital budgeting資本預算 • What long-term investments or projects should the business take on? • Capital structure資本結構 • How should we pay for our assets? • Should we use debt or equity? • Working capital management營運資金管理 • How do we manage the day-to-day finances of the firm?

7. Forms of Business Organization • Three major forms in the United States • Sole proprietorship獨資 • Partnership合夥 • General • Limited有限責任合夥 • Corporation公司 • S-Corp • Limited liability company有限責任公司

8. Advantages Easiest to start Least regulated法令規範最少 Single owner keeps all the profits Taxed once as personal income所有營業所得納入個人綜合所得稅課稅 Disadvantages Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability業主承擔公司債務的無限償還責任 Difficult to sell ownership interest Sole Proprietorship

9. Advantages Two or more owners More capital available Relatively easy to start Income taxed once as personal income營業所得納入個人綜合所得稅課稅 Disadvantages Unlimited liability無限償還責任 General partnership Limited partnership Partnership dissolves when one partner dies or wishes to sell當有合夥人死亡或希望退出時即解散 Difficult to transfer ownership Partnership

10. Advantages Limited liability Unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital Disadvantages Separation of ownership and management Double taxation (income taxed at the corporate rate and then dividends taxed at the personal rate)雙重課稅 (公司就盈餘繳納公司所得稅，股東收到股利後再繳納個人所得稅) Corporation

11. Goal Of Financial Management • What should be the goal of a corporation? • Maximize profit? • Are we talking about long-run or short-run profits? accounting profits? • Minimize costs? • We can minimize costs today by not purchasing new equipment or delaying maintenance • Maximize market share? • have positive earnings? • Maximize the current value of the company’s stock? • There is no short run vs. long run here. The stock price should incorporate expectations about the future • Does this mean we should do anything and everything to maximize owner wealth?

12. The Agency Problem • Agency relationship • Principal hires an agent to represent his/her interest • Stockholders (principals) hire managers (agents) to run the company • Agency problem • Conflict of interest between principal and agent • A common example of an agency relationship is a real estate broker • Management goals and agency costs

13. The Agency Problem • Direct agency costs – the purchase of something for management that can’t be justified from a risk-return standpoint, monitoring costs. • Indirect agency costs – management’s tendency to forgo risky or expensive projects that could be justified from a risk-return standpoint.

14. Managing Managers • Managerial compensation • Incentives can be used to align management and stockholder interests • The incentives need to be structured carefully to make sure that they achieve their goal • Corporate control • The threat of a takeover may result in better management • Other stakeholders利害關係人

15. Work the Web Example • The Internet provides a wealth of information about individual companies • One excellent site is finance.yahoo.com • Click on the web surfer to go to the site, choose a company and see what information you can find!

16. Financial Markets • Cash flows to the firm • Primary vs. secondary markets • Dealer自營商市場vs. auction markets拍賣市場 • Listed上市掛牌vs. over-the-counter securities店頭市場 • NYSE • NASDAQ

17. Quick Quiz • What are the three types of financial management decisions and what questions are they designed to answer? • What are the three major forms of business organization? • What is the goal of financial management? • What are agency problems and why do they exist within a corporation? • What is the difference between a primary market and a secondary market?

18. End of Chapter