CORPORATE FINANCE

Faculty of Finance and Banking

VNU University of Economics and Business, Hanoi
Course description
• Course name: Corporate Finance
• Course Code: BSA2018
• Degree: Undergraduate level
• Language teaching: English
• Number of credits: 3
• Credit hours: 45

General corporate Financial The time value of

finance problems statements analysis Financial planning money

Valuation of bonds Project’s financial

and stocks Risk and return Cost of capital analysis
Course objectives

Knowledge Skills

Self-reliance and responsibility Moral qualities

Learning materials
Required materials
• Ross, Westerfield & Jordan, Fundamentals of Corporate Finance, 9th Edition McGraw-Hill
Irwin, 2012.
• Ross, Westerfield & Jaffe, Corporate Finance, 10th Edition McGraw-Hill Irwin, 2012
• Brealey, Myers, Allen, Principles of corporate finance, 12th Edition McGraw-Hill Education,
2017.

Reference materials
• Nguyen Minh Kieu: Corporate Finance, Statistical Publishing House, 2014.
• Vu Duy Hao, Tran Minh Tuan: Corporate Finance, National Economics University
Publishing House, 2016.
• Nguyen Hai San: Corporate Financial Management, Statistical Publishing House, 2012.
• Tran Ngoc Tho: Modern Corporate Finance, Statistical Publishing House, 2005
 Forms of testing and assessment
Evaluation methods Testing content Proportion
- Class attendance

Class Attendance - Contribution to class 10%

- Assessment of students’ homework

Group Assignment Group presentation 10%

Mid-Term Test Individual test 20%

Final Exams Individual test 60%

100%
Lecturers
PhD. Hai Nam Nguyen
Email: namnguyen@vnu.edu.vn

MSc. Do Dinh Dinh

Email: dinhdo@vnu.edu.vn
Chapter 1.
Introduction to
Corporate Finance
Course: Corporate Finance
Lecturer: PhD. Hai Nam Nguyen
Content
1. Forms of Business organization

2. Corporate Finance and the Financial Manager

Chapter 1. Introduction
to Corporate Finance
3. The Goal of Financial Management

4. Financial Markets and the Corporation

Content
1. Forms of Business organization

2. Corporate Finance and the Financial Manager

Chapter 1. Introduction
to Corporate Finance
3. The Goal of Financial Management

4. Financial Markets and the Corporation

1. Forms of Business organization
• Business is an organization or enterprising
entity engaged in commercial, industrial, or
professional activities.
• The purpose of a business is to organize
some sort of economic production of goods
or services to meet the firm’s strategic
goals and enhance the firm’s value
• Profit: Businesses can be for-profit entities
or non-profit organizations fulfilling a
charitable mission or furthering a social
cause.
là một tổ chức hoặc thực
thể kinh doanh tham gia
vào các hoạt động
thương mại, công nghiệp
hoặc chuyên nghiệp.
Mục đích của một doanh nghiệp
là tổ chức một số loại sản xuất
kinh tế của hàng hoá hoặc dịch
vụ để đáp ứng các mục tiêu
chiến lược của công ty và nâng
cao giá trị công ty
Các doanh nghiệp có thể là
các tổ chức vì lợi nhuận hoặc
tổ chức phi lợi ích thực hiện
một sứ mệnh từ thiện hoặc
thúc đẩy một mục đích xã hội.
1. Forms of Business organization

Forms of Business organization

Sole Limited liability

proprietorship Partnership company – LLC Corporation
(Doanh nghiệp tư (Hợp danh) (Công ty trách nhiệm (Công ty cổ phần)
nhân) hữu hạn)

Single-member Multiple-member
limited liability limited liability
company company

12
 1. Forms of Business organization
Single-member Multiple-member
Sole
Partnership limited liability limited liability Corporation
proprietorship
company company
A business created
A business
A business as a distinct legal
A business owned A business formed by owned by a
owned by entity composed of
Ownership by a single two or more individuals or single
individuals or one or more
individual. entities. individual or
entities (2 to 50) individuals or
entity
entities.
– General partners (TVHD) have
unlimited liability for all
partnership debts, not just Limited liability Limited liability to Limited liability to
Owner has
Liability some particular share to the amount the amount the amount
unlimited liability
responsibility – Limited partners (TVGV) has contributed to contributed to the contributed to the
for business debts
limited liability to the amount the company company company
that partner contributes to the
partnership
Legal entity No Yes Yes Yes Yes
All business
All business All business income is taxed as All business
income is taxed
Tax income is taxed as personal income income is taxed as Double taxation
as personal
personal income personal income
income
A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a general partnership
1. Forms of Business organization
Sole Proprietorship

Advantages Disadvantages
 Easiest to start  Limited to life of owner
 Least regulated  Equity capital limited to owner’s
 Single owner keeps all personal wealth
the profits  Unlimited liability
 Taxed once as personal  Limited in raising capital
income =>unable to exploit new
opportunities because of
 Low operation and
sufficient capital.
organizational costs.
 Difficult to sell ownership interest
 Unstable employees’ jobs
1. Forms of Business organization
Partnership

Advantages
 Two or more owners
 More capital available than sole
proprietorship
 Relatively easy to start
 Income taxed once as personal
Disadvantages
 Unlimited liability
• General partnership
 Partnership dissolves when one
partner dies or wishes to sell

income (Limited partnership life).

 Better management capability  Difficult to transfer ownership

and management skills
1. Forms of Business organization
Corporation

Advantages Disadvantages
 Limited liability  Double taxation (income

 Unlimited life taxed at the corporate rate

and then dividends taxed at
 Separation of ownership and
the personal rate)
management

 Transfer of ownership is easy  High management and

operation costs
 Easier to raise capital and
 Agency problem
expand scale of business
 Stricter regulation
1. Forms of Business organization
Discussion

You plan on launching a business. Which form is right for your business i f …
a) You want to run the business by yourself because it would be easy for decision-making?
b) Your business will engage in risky activities, for example, trading stocks or repairing
roofs?
c) You want to attract many investors to raise large amounts of capital?
d) You want to easily set up your business (you don't have to file any special forms or pay
any fees to start your business)?
e) You want to run a law company in Vietnam?
Content
1. Forms of Business organization

2. Corporate Finance and the Financial Manager

Chapter 1. Introduction
to Corporate Finance
3. The Goal of Financial Management

4. Financial Markets and the Corporation

2. Corporate Finance and the Financial Manager
What is Corporate Finance?

Corporate Finance (or Financial management) focuses on decisions relating to:

Capital budgeting: How much and what types of

assets to acquire?

Corporate Capital structure: How to raise the capital needed

Finance to purchase assets?

Working capital management: How will you

manage your everyday financial activities?
2. Corporate Finance and the Financial Manager
Financial management decisions

Capital budgeting: The process of planning and managing a firm’s long-term investments
→ focus on fixed assets. Ngân sách vốn: Quá trình lập kế hoạch và quản lý các khoản đầu tư dài hạn của công ty
→ tập trung vào tài sản cố định.

Identify investment
opportunities
Xác định cơ hội đầu tư

Capital budgeting

Evaluate the size, timing and

risk of the future cash flow
Đánh giá quy mô, thời gian và rủi ro của dòng tiền trong tương lai
2. Corporate Finance and the Financial Manager
Financial management decisions

Capital structure: The mixture of debt and equity maintained by a firm.

Financing mix

Capital structure

How and Where to raise money

2. Corporate Finance and the Financial Manager
Financial management decisions

Working capital management: Managing firm’s working capital (a firm’s short-term assets -
such as cash, receivables, and inventory, and firm’s short-term liabilities – such as payables).

Short-term assets

Working capital management

Short-term liabilities
2. Corporate Finance and the Financial Manager
Financial management decisions

The role of financial management

Mobilize capital fully and promptly for business activities

1

Use capital economically and effectively

2

Closely monitor all aspects of business operations and activities.

3
 2. Corporate Finance and the Financial Manager
Financial manager

Activities related to Activities related to

financial accounting
management

Figure. A Sample Simplified

Organizational Chart
Content
1. Forms of Business organization

2. Corporate Finance and the Financial Manager

Chapter 1. Introduction
to Corporate Finance
3. The Goal of Financial Management

4. Financial Markets and the Corporation

 3. The Goal of Financial Management
Financial goals Avoid tax Protect enviroment

Survive
Maximize sales or market share
Minimize costs

What is the goal of financial management?

Raise capital
Avoid financial distress and bankruptcy
Beat the competition

Maximize profits
Maintain steady earnings growth

Increase cash flow

3. The Goal of Financial Management
The goal of financial management

From the stockholders’ point of view,

what is a good financial management decision?
3. The Goal of Financial Management
The goal of financial management

The primary goal of financial management is

to maximize the current value per share of the existing stock.
(sometimes known as shareholder wealth maximization, firm value maximization)
the market price per share of the firm's common stock
3. The Goal of Financial Management
The goal of financial management
Value vs. Price

 Intrinsic Value: An estimate of a stock’s “true”

value based on accurate risk and return data.
The intrinsic value can be estimated, but not
measured precisely.

 Market Price: The stock value based on

perceived but possibly incorrect information as
seen by the irrational investor
→ Management’s goal should be to take actions
designed to maximize the firm’s intrinsic value, not
its current market price.
3. The Goal of Financial Management
The goal of financial management

Maximize stock value by:

• Forecasting and planning
• Investment and financing decisions
• Coordination and control
• Transactions in the financial markets
• Managing risk
3. The Goal of Financial Management
Agency Problem

• Agency problem: The possibility of conflict of interest between the stockholders and
management of a firm

• But the following factors affect managerial behavior:

 Managerial compensation plans
 Direct intervention by shareholders
 The threat of firing
 The threat of takeover
Content
1. Forms of Business organization

2. Corporate Finance and the Financial Manager

Chapter 1. Introduction
to Corporate Finance
3. The Goal of Financial Management

4. Financial Markets and the Corporation

4. Financial Markets and the Corporation
Cash Flows to and from the Firm
4. Financial Markets and the Corporation
Financial Markets

Financial markets are where

individuals and organizations
wanting to borrow money are
brought together with those
who have surplus funds
4. Financial Markets and the Corporation
Classification of financial markets
Physical asset markets (also called “tangible” or “real” asset
markets) are for products such as wheat, autos, real estate,
computers, and machinery
Spot markets are where assets are bought or sold for “on-
the-spot” delivery (literally, within a few days)
Money markets are the markets for short-term, highly liquid
debt securities.
Primary markets are the markets in which corporations raise
new capital.
Dealer markets are secondary markets where dealers buy
and sell for themselves, at their own risk. Dealer markets in
stocks and long-term debt are called over-the-counter
(OTC) markets. Most trading in debt securities takes place
over the counter
Private markets are where transactions are negotiated
directly between two or more parties.
Financial asset markets deal with stocks, bonds, notes,
and mortgages.
Futures markets are where participants agree today to
buy or sell an asset at some future date
Capital markets are the markets for intermediate- or
long-term debt and corporate stocks.
Secondary markets are markets in which existing,
already outstanding securities are traded among
investors.
Auction markets are secondary markets which has a
physical location where those who wish to sell with
those who wish to buy.
Public markets are where standardized contracts are
traded on organized exchanges.
Summary
• 4 main forms of business organization
1. Forms of Business organization
• Pros and cons of each form

• Definition of corporate finance

2. Corporate Finance and the Financial
• Financial management decisions
Manager
Chapter 1. • Financial managers
Introduction
to Corporate • The goal of financial management
Finance 3. The Goal of Financial Management • Value vs price
• Agency problems

4. Financial Markets and the • Cash Flows to and from the Firm
Corporation • Classification of financial markets