Professional Documents
Culture Documents
1-1
IntroductionCorporate
to
Finance
Ross Westerfield Jaffe
Corporate Finance
Sixth Edition
McGraw-Hill Ryerson
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 Institutions, Financial Markets, And The
Corporation
1.6 Trends in Financial Markets and Management
1.7 Outline of the Text
McGraw-Hill Ryerson
1-3
1-4
Current Assets
Fixed Assets
1 Tangible
2 Intangible
McGraw-Hill Ryerson
Shareholders
Equity
1-5
Current Assets
Long-Term
Debt
Fixed Assets
1 Tangible
2 Intangible
McGraw-Hill Ryerson
What longterm
investments
should the
firm engage
in?
Shareholders
Equity
1-6
McGraw-Hill Ryerson
Current
Liabilities
Long-Term
Debt
Shareholders
Equity
1-7
Current Assets
Fixed Assets
1 Tangible
2 Intangible
McGraw-Hill Ryerson
Current
Liabilities
Net
Working
Capital
Long-Term
Debt
Shareholders
Equity
1-8
Capital Structure
The value of the firm can be
thought of as a pie.
The goal of the manager is
to increase the size of the
pie.
The Capital Structure
decision can be viewed as
how best to slice up the pie.
70%50%30%
25%
DebtDebt
Equity
75%
50%
Equity
If how you slice the pie affects the size of the pie,
then the capital structure decision matters.
McGraw-Hill Ryerson
1-9
Treasurer
Controller
Cash Manager
Credit Manager
Tax Manager
Cost Accounting
Capital Expenditures
Financial Planning
Financial Accounting
Data Processing
McGraw-Hill Ryerson
1-10
McGraw-Hill Ryerson
1-11
Invests
in assets
(B)
Retained
cash flows (D)
Short-term debt
Cash flow
from firm (C)
Dividends and
debt payments (F)
Taxes (E)
Current assets
Fixed assets
Financial
markets
Government
Long-term debt
Equity shares
1-12
1-13
McGraw-Hill Ryerson
1-14
The Corporation
Advantages and Disadvantages
McGraw-Hill Ryerson
1-15
Partnership
Liquidity
Subject to substantial
restrictions.
Voting Rights
Taxation
Partnership income is
taxable.
Reinvestment
Broad latitude
Liability
Limited liability
Continuity
Perpetual life
Limited life
McGraw-Hill Ryerson
1-16
McGraw-Hill Ryerson
1-17
Financial Markets
Money versus Capital Markets
Money Markets
For short-term debt instruments
Capital Markets
For long-term debt and equity
McGraw-Hill Ryerson
1-18
Financial Markets
Primary versus Secondary 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 from one
investor to another.
Securities may be exchange traded or trade overthe-counter in a dealer market.
McGraw-Hill Ryerson
1-19
Financial Markets
Firms
Stocks and
Bonds
Money
Investors
Bob
securities
Sue
money
Primary Market
Secondary
Market
McGraw-Hill Ryerson
1-20
McGraw-Hill Ryerson