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Introduction To
Corporate Finance

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 Course Objectives
1. Introduction to corporate finance
2. Financial statement analysis
3. Financial planning
4. Time value of money
5. Bond valuation trai phieu

6. Stock Valuation
7. Risk and return
8. Evaluate investment project
9. Cost of capital and capital structure decision
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 Assessment
1. Assignments: 30%
• Individual: in-class exercises (10%).
• Group Project: company analysis (20%).

2. Mid-term test: 25%

• Written questions / Multiple choice, 60-75 minutes.

3. Final Examination: 45%

• Written questions / Multiple choice, 75-90 minutes.

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 Course materials
1. Fundamentals of Corporate Finance,
Stephen A. Ross, Randolph W. Westerfield,
Bradford D. Jordan, 10th ed, McGrawHill-Irwin
2. Principles of Managerial Finance,
Lawrence J. Gitman, 10th ed, Pearson.

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 Contact
 Instructor: Pham Tien Minh
 Email: ptminh@hcmut.edu.vn
 Faculty: School of Industrial Management, HCMUT
 Room: 104 – B10 Building

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 1
Introduction To
Corporate Finance

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 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 1-7
 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?
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 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)
 Treasurer – oversees cash management, credit
management, capital expenditures, and
financial planning
 Controller – oversees taxes, cost accounting,
financial accounting and data processing
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 Financial Management Decisions

 Capital budgeting
 What long-term investments or projects
should the business take on?
 Capital structure
 How should we pay for our assets?
 Should we use debt or equity?
 Working capital management
 How do we manage the day-to-day
finances of the firm?
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 Forms of Business Organization

 Three major forms in the United

States
 Sole proprietorship
 Partnership
 General
 Limited
 Corporation
 Limited liability company

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 Sole Proprietorship

 Advantages  Disadvantages
 Easiest to start  Limited to life of
 Least regulated owner
 Single owner keeps  Equity capital limited
all the profits to owner’s personal
 Taxed once as wealth
personal income  Unlimited liability
 Difficult to sell
ownership interest

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 Partnership

 Advantages  Disadvantages
 Two or more owners  Unlimited liability
 More capital available  General partnership
 Relatively easy to  Limited partnership
start  Partnership dissolves
 Income taxed once as when one partner dies
personal income or wishes to sell
 Difficult to transfer
ownership

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 Corporation

 Advantages  Disadvantages
 Limited liability  Separation of
 Unlimited life ownership and
 Separation of management
ownership and  Double taxation
management (income taxed at the
 Transfer of ownership corporate rate and
is easy then dividends taxed
at the personal rate)
 Easier to raise capital

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 Who
focuses on
financial
issues within
a business
/firm?

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 Goal Of Financial Management

 What should be the goal of a corporation?

 Maximize profit?
 Minimize costs?
 Maximize market share?
 Maximize the current value of the company’s
stock?
 Does this mean we should do anything
and everything to maximize owner wealth?

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 The Agency Problem

 Agency relationship
 Principal hires an agent to represent his/her
interests
 Stockholders (principals) hire managers
(agents) to run the company
 Agency problem
 Conflict of interest between principal and agent
 Management goals and agency costs

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 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

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 Financial Markets

 Cash flows to the firm

 Money market vs. capital market
 Primary vs. secondary markets

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 Financial Markets

 Financial markets provide a forum in which

suppliers of funds and demanders of funds can
transact business directly.
 The two key financial markets are the money
market and the capital market.
 Transactions in short term marketable securities take
place in the money market (T-bills, commercial paper)
 Transactions in long-term securities take place in the
capital market (bonds, stock).

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 Financial Markets
 Whether subsequently traded in the money or
capital market, securities are first issued
through the primary market.

 Once issued, securities then trade on the

secondary markets such as the New York
Stock Exchange or NASDAQ.
 In VN: HOSE & HNX (HASTC)

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 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?
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End of Chapter

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.