Corporate Finance
Lecture 1
Topics

Change of schedule:
– Fridays
from 18:30 – 19:50 to 11:00 – 12:20


Practical information about this course
The firm and the financial managers
About the Course





Objective: to introduce basic principles of finance
and practical tools for financial decisions.
Text book: Corporate Finance, Ross, Westerfield
and Jaffe, 7th edition
Syllabus and notes online:
http://docentes.fe.unl.pt/~qdai/teaching/master/
corpfin2009.html
Office hour: Tuesday 16:00 to 17:00, Room 352
Email: qinglei.dai@fe.unl.pt
Evaluation

Class participation (10%)

Exercises and Case studies (40%)
– 2 cases and three online exercises
– Moodle password: finance

Case study group:
– 3-4 students per group.
– The groups have to be registered by April 14 with TA.
Anyone who fails to register has to do the case study
ALONE.

Final exam (50%)
– May 19
The firm
and the financial managers


The firm
What do we learn from this course?
– The balance sheet model of corporate
finance

The role of a financial manager
– What is a financial manager
– The role
Organization Chart
Board of Directors
Chairman of the Board and
Chief Executive Officer (CEO)
President and Chief
Operating Officer (COO)
Vice President and
Chief Financial Officer (CFO)
Treasurer
Controller
Cash Manager
Credit Manager
Tax Manager
Cost Accounting
Capital Expenditures
Financial Planning
Financial Accounting
Data Processing
The Role of The Financial
Manager
(2)
Firm's
operations
Real assets
(1)
Financial
Manager
(4a)
(4b)
(3)
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors
Investors
Goals of the firm



Shareholders desire
wealth maximization
Do managers
maximize
shareholder wealth?
“Agency Problems”
Goals of the firm
Agency Problem Solutions
1 - Compensation plans
2 - Board of Directors
3 - Takeovers
4 - Specialist Monitoring
5 - Auditors
The Firm

Purpose of the firm: value creation
– Does value maximization justify unethical
behavior
Enron
 More suggestions?


Two aspects of corporate finance:
– Raise funding
– Investment

Balance sheet model of corporate
finance
The Balance-Sheet
Total Assets:
Current
Assets
Liabilities and Equity
Current
Liabilities
Long-Term
Debt
Fixed Assets
1 Tangible
2 Intangible
Shareholders’
Equity
The Balance-Sheet
Total Assets:
Current
Assets
Fixed Assets
1 Tangible
2 Intangible
Liabilities and Equity
Current
Liabilities
Long-Term
Debt
What longterm
investments
should the
firm engage
in?
Shareholders’
Equity
The Role of The Financial
Manager

Capital Budgeting Decision
– also called the Investment Decision
Tangible Assets
Intangible Assets
Portugal Telecom
Coca-Cola brand name
@ 3,585 million Euros
The Balance-Sheet
Total Assets:
Liabilities and Equity
Current
Liabilities
Current
Assets
How can the firm
raise the money
Fixed Assets for the required
investments?
1 Tangible
2 Intangible
1. Financing Decision
2. Capital Structure
Long-Term
Debt
Shareholders’
Equity
The Balance-Sheet
Total Assets:
Current
Assets
Liabilities and Equity
Current
Liabilities
Net working
capital
management
Long-Term
Debt
Fixed Assets
1 Tangible
2 Intangible
Shareholders’
Equity