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FIN Test 1 Notes

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FIN 3715
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Lecture 1 Class NotesCorporate FinanceBalance SheetAssetsClaimsCapital BudgetingCapital StructureWorking Capital Working Capital ManagementManagementCHAPTER 1Corporationscorporation limited liability transferability of shares juridical personality indefinite duration these are pros for a corporationOriginsjointstock companies partnership traditional legal corporations medieval guilds didnt get the rest of thisthBusiness corporations England in the 16 centurymonopolieschartered by crown18001860s Britain US France Germanypassage of general incorporation lawsmerging two conceptual forms above jointstocktraditional legalStrong driving forces for creation of corporationspread of capitalintensive technologies productiontransportationthrailroads in late 19 centuryall industrialized nationsrequire large sums of capital that could only be solved through corporate form and only with numerous innovations in debtequity instrumentsmade possiblenecessary big expansion of other industries steelcoal that only the corporate form could support18701910refinement of corporate formhuge industrial expansionspredominance of corporate formnew problemsissuesStandard OilUS Steelmonopolies powerGoal of Financial Managementmaximize shareholder value pg 9 of textotherssurvive1avoid financial distressbankruptcyAgencyRecent scandalsEnronWorld ComAdelphiaSubprime Mortgage CrisisQuestion In light of scandals is the goal below realisticMGT maximize shareholder wealthShareholderEmpirical evidence in support of goal maximize shareholder wealth Active market for corporate control 1980sgrowing importance of equitybased executive payinsolvencies of social security systems globallyshareholder economies perform betterFinancial MarketsCorporationsCorporationsAssetsFinancial MarketsClaims on AssetsPrimary marketsstocks that are sold from the company to individuals on the marketSecondary marketsstocks sold between individuals on the marketCHAPTER 2Cash FlowEmphasized in our course basis for valuationHow to deriveUse common financial statements Balance SheetIncome Statement because all firms use themTaxesAssume fixed or flat corporate tax rate in our valuations this semesterWont do detailed tax calculations p 31No need mid to large corporations which is our emphasis have marginal tax rates in 3435 range piecewise formulaCalculations of Cash Flows work example pg 3236Key Formula p 36Cash Flow from Assets CFA Cash Flow to Claimsholders CFC Claimsholderscreditors shareholdersOperating Cash Flow OCFNet Capital Spending NCSChange in Net Working Capital NWCCFAOCFNCSNWCCFC creditorsshareholdersWhere2
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