3/2/2024

FUNDAMENTALS OF FINANCIAL MANAGEMENT

Dr. Tien Ng

Dr. Tien Nguyen (Rei)

• Ph.D., Auckland University of Technology, New Zealand (2019)
• M.Phil., Universite de Lille 2 , France (2014)
• M.Sc., University of Queensland, Australia (2006)

Lecturer in Finance and Banking, International University – Vietnam National University HCMC
Lecturer in Accounting, Auckland University of Technology, New Zealand (2018)
Scholar, University of Massachusetts, Amherst, United States (2010)

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• facebook.com/tien.c.nguyen • [email protected] • linkedin.com/in/tien-nguyen-rei-
4b443361/

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Topic 1: Introduction to finance. Overview of

corporate finance decisions, capital markets
and financial instruments

Topic 2: Time value of money, discounted cash

flows and present value concepts

Topic 3: Valuing Debt and Equity Sources:

Bond vs. Stock
Topic 4: Investment evaluation & capital
budgeting decisions

Topic 5: Risk & return: Introduction to

portfolio theory
Topic 6: Long-term financial decisions: Capital
structure and cost of capital

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Brealey, R.A., Myers, S. C. & Marcus A. J.

Fundamentals of Corporate Finance, McGraw-
Hill Irwin (5th edition)

And slides, when needed, will be handed in class

CT1

Multiple buzz-quiz 30%

Midterm 30%

Final-exam 40%

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CT1 Canh Tiên, 9/3/2021

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WHAT IS CORPORATE FINANCE?

investing decision
financing decision
dividend policy

… the top concerns of corporate finance:

 What long-term investments should the firm choose?
 How should the firm raise funds for the selected investments?
2 sources of F: debt financing (debtL: owner, invesstors): chủ nợ and equity financing (investor, equity-owners): chủ sở hữu
 How should the firm distribute profit?
Net profit could be distributed (to owner ---> pay dividend) and retained earnings (growth --> P increase)
 How should short-term operating cash flows be managed and
financed?

FINANCIAL MANAGERS & THE FLOWS OF CASH

(& THE RELATIONSHIP WITH FINANCIAL MARKETS)

Financing decision
Investing decision 2 Raising funds
1 Investment
FINANCIAL
FINANCIAL
OPERATIONS MARKETS
MANAGER
(Plants, equipment, (INVESTORS:
4
DIV/INT/DEBT Debt-holders
projects) Cash from REINVEST
4
3 paid Stock-holders)
operation

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WHO IS FINANCIAL MANAGERS

BOD
Board of Directors

CEO Chief Executive Officer

COO Chief Operating CFO Chief Financial Director of

Officer Officer Marketing

TREASURER CONTROLER

Cash Manager Credit Manager Tax Manager Cost Accounting

Capital Financial Financial Data

Expenditure Planning Accounting Processing

THE CORPORATE FIRM

• Basic company problem: raise funds

• The corporate form of business is the standard method for solving the
problems encountered in raising large amounts of cash
• However, businesses can take other forms

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FORM OF BUSINESS ORGANIZATION

Proprietorship / Partnership Corporation

Sole Proprietor
Who own the business? manager partners shareholders
Are owners & managers agency problem
separate?
What is life for business? limited
limited unlimited
(continuity)
What is owners’ liabilities? unlimited unlimited limited

Are owners & the no – individual no – individual yes – corp. & rev-exp = income before tax(EBT)
EBT- cor tax=net income (EAT)
business taxed separately? income tax income tax individual tax
double taxation
- Advantage: Easy to form + Full control + Few regulations + No corporate income tax
- Disadvantage:
- Advantage: Easily unlimited Liability +formed
and inexpensively Limited to the
+ Few life of owner
regulations + No+ corporate
Difficult toincome
obtain large adv: easy
tax amount raise fund and limited liabilities
of funding
- Disadvantage: unlimited Liability (general partners) + Difficult to transfer ownership + Difficult to obtain large K amount

POSSIBLE GOALS OF CORPORATION

• Maximize the shareholders’ wealth:

Maximize the earnings / EPS & earning growth
Maximize the market share
Maximize the shareholders’ wealth

Maximizing stock
prices???

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POSSIBLE GOALS OF CORPORATION

• Maximize the shareholders’ wealth:

Maximize the earnings / EPS & earning growth
Maximize the market share
Maximize the shareholders’ wealth

Maximizing stock’s
intrinsic value

AGENCY PROBLEM AT CORPORATION

• Agency problem: Conflict of interest between principal and agent

• e.g.,
• Shareholders vs. Manager
• Principal hires an agent to represent his/her interest
• Shareholders (principals) hire managers (agents) to run the company
• Creditors (Debtors) vs. Shareholders

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END OF LECTURE 1