FINA1310 CORPORATE FINANCE
Faculty of Economics and Finance
University of Hong Kong
Prof. Shiyang Huang
Lecture 1: Introduction of Corporate Finance
Key Takeaways
• Basic Information
• Course Objective and Overview
• How to Do Well in This Course
• Finance and the Economy
• Fundamental Questions of Finance
• Financial Management
Instructor Information
• Name: Prof. Shiyang Huang
PhD. in Finance from the London School of Economics
• Position: Deputy Area Head of Finance
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• Office: KKL Room 825
• Email address: huangsy@hku.hk
• Format
• Regular lectures
• Office hours
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9 am – 11 am (Tuesday; in person)
Summary of Q&As from students
Intensive live summary and Q&A sessions before exams
TA Information
• Name: Miss. Chenchen(Inge) Guan
Office: KKL Room 1026
• Email address: ccguan@hku.hk
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• Tutorial Format
HKU Moodle: _FINA1310_CD_2025
• In-person Q&A sessions: TBD
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Key Takeaways
• Basic Information
• Course Objective and Overview
• How to Do Well in This Course
• Finance and the Economy
• Fundamental Questions of Finance
• Financial Management
Textbook
Fundamentals of Corporate Finance
• Asia Global Edition
• Second Edition
• Ross, Westerfield, Jordan, Lim, and Tan
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Financial Calculator
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Necessary
A guidance will be provided
Performance Evaluation
• Assessment
Attendance and participation in tutorial classes (5%)
Homework assignments (20%)
• Two assignments
• Group based: No. of members should be no more than 5.
• Mid-term exam (20%)
• Final exam (55%)
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• Implicit contract
Come to lectures/tutorial classes every week and be well
prepared
• Contribution to Q&A sessions
• Cheating of any form will not be allowed
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How to Do Well in this Course?
• Theory vs. Practice
Most of this course will be devoted to theory
• What about practice?
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Wall Street Journal or Financial Times
• Some Helpful Suggestions
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Do readings ahead of time (skim textbook chapters in
advance)
Take notes during lectures
Review lectures afterwards with your study group
Work on assignments in groups
Do problems
Ask questions
The Big Picture of the Course
• This course is about:
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Financing and investment decisions
Applying to corporations or individuals
• The goal of this course is:
An introductory course to lead you into the are of finance
• To guide you in major financial decisions of corporations
• To equip you with the core skills in future career
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Examples of Jobs in Financial Industry
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Banker Pay: Who Makes the Most? (WSJ article in 2013)
Despite their recent troubles, investment bankers are still the best paid
professionals
For example, investment bankers’ average salary was about 230,000
USD excluding bonus in 2013.
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The 31-Year-Old Hedge Fund Star Who Was Paid $119 Million
(Forbes Magazine in 2013)
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According to a recent Securities & Exchange Commission filing, Och-Ziff
Capital Management paid James Levin $119 million in 2013
Various jobs in financial professionals
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Investment banks, commercial banks, hedge funds, high frequency
trading firms, mutual funds, pension funds
Corporations and NGOs
FinTech companies:
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Blockchain, BitCoin, P2P lending, Robot-advisers
Finance and the Economy
Fundamental Questions of Finance
• Valuation
• How are financial assets valued?
• How should financial assets be valued?
• How do financial markets determine asset values?
• Management
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How much should I save/spend?
What should I buy/sell?
When should I buy/sell?
How should I finance the transaction?
• We apply valuation and management to both personal
and corporate decisions
Challenges of Finance
• Time value of money
• Cash flows now are different from cash flows later
• Risk
• Certain cash flows are different from (uncertain) cash flows
• How should we model or quantify the risk?
Challenges of Finance
• Time value of money
• Quiz 1: how to choose between $10,000 now and $10,100
one month later?
• Risk
• Quiz 2: how to choose between saving in the bank and
investment in S$P 500 index (U.S. market index)?
Challenges of Finance
• Time value of money
• Cash now are different from cash one month later
• Example: save $10,000 at HSBC
Challenges of Finance
• Time value of money
• Cash now are different from cash one month later
• Example: save $10,000 at HSBC (not a good choice)
Interest at maturity
HKD 0.08
Maturity date
2 October 2025
Interest rate
0.0100%
Challenges of Finance
• Risk
• How to choose between saving in the bank (HSBC) and
investment in S&P 500 index
• Interest rate vs. return from S&P 500 index:
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0.01% vs. 7% (per year)
Challenges of Finance
• Risk
• Although S&P 500 index provides 7% per year on average,
the return on S&P 500 index is volatile.
Challenges of Finance
• Risk: crash?
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Example: Black Monday 1987, refers to Monday, October 19,
1987, when stock markets around the world crashed, shedding a
huge value in a very short time. The crash began in Hong
Kong and spread west to Europe, hitting the United States after
other markets had already declined by a significant margin.
Challenges of Finance
• Risk: crash?
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Example: Black Monday 1987
Challenges of Finance
• Risk: crash?
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Example: Financial Crisis of 2007-08, is considered by many
economists to have been the worst financial crisis since the Great
Depression of the 1930s
Challenges of Finance
• A list of crisis or crashes in the history
Year
Crisis or Stock Market Crash
1987
Black Monday 1987
1994-1995
1994 Economic Crisis in Mexico
1997-98
1997 Asian Financial Crisis
1998
Russian Financial Crisis
1999-2002
Argentine Economic Crisis
2001
Bursting of dot.com Bubble
2007-2008
Global Financial Crisis
2010
European Sovereign Debt Crisis
2015
Chinese Stock Market Crash
Challenges of Finance
• Risk: can wen predict risk?
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One example: Fail of Long-Term Capital Management (LTCM)
LTCM was run by Myron S. Scholes and Robert C. Merton, who
shared the 1997 Nobel Memorial Prize in Economic Sciences for
“a new method to determine the value of derivatives”.
• Initially successful with annualized return of over 21% (after fees)
in its first year, 43% in the second year and 41% in the third year.
• It lost $4.6 billion in less than four months following 1997 Asian
Financial Crisis and 1998 Russian Finance Crisis.
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• Detailed information in “When Genius Failed” by Roger
Lowenstein
Course Overview
• Introduction
• Part I: Valuation
• Time Value of Money
• Discounted Cash Flow Valuation
• Bond and Stock Valuation
• Part II: Risk and Return
• Historical Risk and Return Relationships, CAPM
• Part III: Capital Budgeting
• Real Investment Decisions, Cost of Capital
• Part IV: Financing Decisions
• Raising Capital, Tradeoff between Equity and Debt
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