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Chapter Outline
Corporate finance Chapter 1
• Lecturer: Dr. Tran Tat Thanh
• Email: [email protected]
• Mobile: 0904282440
Introduction to Corporate Finance

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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter
ChapterOutline
Outline Chapter
ChapterOutline
Outline
• Corporate Finance and the Financial Manager • Corporate Finance and the Financial Manager
tài chính doanh nghiệp quản lý tài chính
• Forms of Business Organization • Forms of Business Organization
tổ chức doanh nghiệp
• The Goal of Financial Management • The Goal of Financial Management
• The Agency Problem and Control of the • The Agency Problem and Control of the
Corporation Corporation

• Financial Markets and the Corporation • Financial Markets and the Corporation

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Corporate Finance Corporate Finance

What do you need to have in order to start Some important questions that are answered using finance:
a business? 1. What long-term investments should the firm take
on?
Money?
2. Where will we get the long-term financing to pay for
Ideas? the investment?

What do you need first? 3. How will we manage the everyday financial
activities of the firm?
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Financial Management Decisions

Corporate Finance • Capital budgeting decision (Long-term investment decision)
What is the difference between the first two questions and the • What long-term investments or projects should the
third one? business take on?

• Capital structure decision (Long-term financing decision)

Short term decisions versus Long term decisions • How should we pay for our assets?
• Should we use long-term debt or equity?

• Working capital management decision

• How do we manage the day-to-day finances of the firm?

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The Balance-Sheet Model The Balance-Sheet Model

of the Firm of the Firm
The Net Working Capital Investment Decision The Net Working Capital Investment Decision
Current Current Current
Liabilities Assets Liabilities
Current
Net Net
Assets Working Long-Term Working
Capital Capital
Debt
Fixed Assets Fixed Assets Long-Term
How much short- How much short-
Debt
1 Tangible term cash flow 1 Tangible term cash flow
does a company Shareholders’ does a company Shareholders’
2 Intangible need to pay its Equity 2 Intangible need to pay its Equity
bills? bills?

McGraw-Hill/Irwin McGraw-Hill/Irwin
Corporate Finance, 7/e © 2005 The McGraw-Hill Companies, Inc. All Rights Reserved. Corporate Finance, 7/e © 2005 The McGraw-Hill Companies, Inc. All Rights Reserved.

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Financial Managers Hypothetical Organization Chart

Chief Financial Officer (CFO):The
top financial manager within a firm Board of Directors

(Giám đốc tài chính)

Chairman of the Board and
Treasurer: Oversees cash Chief Executive Officer (CEO)

management, credit management, President and Chief

capital expenditures, and financial Operating Officer (COO)

planning Vice President and

Chief Financial Officer (CFO)
(Giám đốc nguồn vốn)
Controller: Oversees taxes, cost Treasurer Controller

accounting, financial accounting and

data processing Cash Manager Credit Manager Tax Manager Cost Accounting

(Kế toán trưởng) Capital Expenditures Financial Planning Financial Accounting Data Processing
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Chapter Outline Forms of Business Organization in

• Corporate Finance and the Financial Manager
the U.S.

• Forms of Business Organization Sole

• Single Owner
Proprietorship
• The Goal of Financial Management
• General
Partnership • Limited
• The Agency Problem and Control of the Corporation

• Financial Markets and the Corporation • C-Corporation

Corporation • S-Corporation
• Limited Liability Company (LLC)
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Forms of Business Organization in

the U.S. Sole Proprietorship
Advantages:
Sole
• Single Owner
Proprietorship • Easiest to start
• Least regulated
• General
Partnership • Single owner keeps all the
• Limited
profits

• C-Corporation • Taxed once as personal

Corporation • S-Corporation income
• Limited Liability Company (LLC)
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Forms of Business Organization in

Sole Proprietorship the U.S.
Disadvantages:
• Limited to life of owner Sole • Single Owner
Proprietorship
• Equity capital limited to
owner’s personal wealth
• General
• Unlimited liability Partnership • Limited
• Difficult to sell
ownership interest • C-Corporation
Corporation • S-Corporation
• Limited Liability Company (LLC)
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Partnership Partnership
Disadvantages:
Advantages:
• Unlimited liability
• Two or more owners General partnership
Limited partnership
• More capital available
• Partnership dissolves when
• Relatively easy to start one partner dies or wishes to
• Income taxed once as sell
personal income • Difficult to transfer
ownership
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Corporation Corporation
Disadvantages:
Advantages:
• Separation of ownership
• Limited liability
and management
• Unlimited life
• Double taxation (income
• Separation of ownership
taxed at the corporate
and management
rate and then dividends
• Transfer of ownership is taxed at the personal
easy rate)
• Easier to raise capital
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Corporation Chapter Outline

Close corporation=Privately held corporation=private corporation
(Công ty cổ phần nội bộ= Công ty cổ phần đóng)
• Corporate Finance and the Financial Manager
IPO: Initial public offerings
Phát hành lần đầu ra công chúng (Public)
• Forms of Business Organization
Public corporation = Publicly held corporation
(Công ty cổ phần đại chúng) • The Goal of Financial Management
• The Agency Problem and Control of the
Listed corporation Unlisted public corporation
(Công ty đại chúng chưa niêm yết) Corporation
(Công ty niêm yết)
• Financial Markets and the Corporation
Official stock exchanges OTC (Over the counter market)
(Sở giao dịch chứng khoán) (Thị trường phi tập trung)
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Goal of Financial Management

Goal of Financial Management
In micro economics: Profit maximization.
What should be the goal of a corporation?
Maximize profits? Why “profit maximization” is not the primary goal in
Minimize costs? financial management?
Maximize market share? 1. First, this objective is ambiguous:Which profit to maximize?
Maximize the current value of the company’s Accounting profit; Economic profit; Long-term profit;
stock?
Short-term profit.
Does this mean we should do anything and Example: R&D (Research and development) cost
everything to maximize owner wealth? 2. Second, this objective ignores the time value of money
3.Third, this objective ignores the relationship between risk
and return.
TOP R&D spenders
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25 26 Stop doing R&D does not affect the REVENUE this year.
PROFIT = REVENUE - COSTS.

Leaders of the mobiphone market in the past: Nokia, Black berry

Iphone = ipod + ipad + mobiphone

Two most important principles in financial management Risk and return tradeoff
1st principle: Time value of money Required rate of return
(Giá trị thời gian của tiền) (Tỷ suất sinh lời yêu cầu/đòi hỏi)
Money changes value overtime. tiền tđổi gtrị theo tgian
0 Discount rate
1 2 3 T
Expected rate
Hurdle rate (Ngưỡng sinh lời)
-100 +100 of return
IRR>Hurdle rate Accepted
2nd principle: Risk and return tradeoff.
(Đánh đổi rủi ro – lợi nhuận) Opportunity cost of investment
The higher the risk, the higher the expected return.

Cost of capital
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Goal of Financial Management Chapter Outline

Maximization of shareholder wealth.
• Corporate Finance and the Financial Manager
tối đa hoá tài sản của chủ sở hữu
Shareholder wealth: Example • Forms of Business Organization
• The Goal of Financial Management
Jeff Bezos
• The Agency Problem and Control of the
Net Worth: $107.3 billion (2019).
Corporation
= Number of shares*Market price of one share • Financial Markets and the Corporation
Founder: Amazon (AMZN)
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29 stock split: chia tách cổ phiếu 30

Separation of Ownership and Control

The Agency Problem
Agency relationship
• Principal hires an agent to represent his/her
Board of Directors
interests
Debtholders

Shareholders
• Stockholders (principals) hire managers Management
(agents) to run the company
Agency problem
Conflict of interest between principal and Debt
agent Assets
Management goals and agency costs Equity
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31 32 The would be no Agency problem for a sole proprietorship

because the owner is also the manager.

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Separation of Ownership and Control Managing Managers

bồi thường, thù lao
 Do the managers of the corporation make efforts to Managerial compensation
maximize shareholder wealth? • Incentives can be used to
align management and
stockholder interests
 The traditional answer is that the managers of the • The incentives need to be
corporation are obliged to make efforts to structured carefully to make
sure that they achieve their
maximize shareholder wealth. goal
Corporate control
obliged: bị bắt buộc
The threat of a takeover may
result in better management
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33 34 PERFORMANCE SHARES: CỔ PHIẾU THƯỞNG CHO THÀNH

TÍCH QUẢN LÝ

The Set-of-Contracts Perspective Do Shareholders Control Managerial Behavior?

 The firm can be
viewed as a set of contracts.
 One of these contracts is between shareholders  Shareholders vote for the board of directors, who in
and managers. turn hire the management team.
 The managers will usually act in the shareholders’  Contracts can be carefully constructed to be incentive
interests. compatible.
 The shareholders can devise contracts that align the  There is a market for managerial talent—this may
incentives of the managers with the goals of the provide market discipline to the managers—they can
shareholders. be replaced.
 The shareholders can monitor the managers  If the managers fail to maximize share price, they
behavior. may be replaced in a hostile takeover.
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 This contracting and monitoring is costly.
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Work the Web Example Chapter Outline

 The Internet provides a wealth of information about
individual companies • Corporate Finance and the Financial Manager
• Forms of Business Organization
 One excellent site is finance.yahoo.com
• The Goal of Financial Management
 Click on the web surfer to go to the site, choose a
company and see what information you can find! • The Agency Problem and Control of the
Corporation

• Financial Markets and the Corporation

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Figure 1 Flows of Funds Through the

Financial Markets Financial System

 Cash flows to the firm

 Primary vs. secondary markets
 Dealer vs. auction markets
 Listed vs. over-the-counter securities
 NYSE
 NASDAQ

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Các cách chia financial market:

- primary market vs secondary market
- money market thị trg tiền tệ(term to maturity < 1 year: nợ ngắn hạn) vs capital market thị trg vốn(term >= 1 year, vốn chủ sở hữu)
- debt market vs equity market
- exchange-traded thị trường tập trung vs over the counter markets thị trường phi tập trung

maturity: hết kỳ hạn

Financial Markets Ethics Issues

vấn đề đạo đức
 Is it ethical for tobacco companies to sell a product that is
known to be addictive and a danger to the health of the user?
Stocks and Is it relevant that the product is legal?
Investors
Bonds
Firms securities  Should boards of directors consider only price when faced
Money Bob Sue tên with a buyout offer?
money vdụ
 Is it ethical to concentrate only on shareholder wealth, or
Primary Market should stakeholders as a whole be considered?
Secondary
Market  Should firms be penalized for attempting to improve returns
by stifling competition (e.g., Microsoft)?
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Primary market (thị trường sơ cấp) is the market for newly issued
shares.
Secondary market (thị trường thứ cấp) is the market for “second
hand” shares.
Institutional investor: Nhà đầu tư tổ chức (funds, investment banks,
insurance companies).
For example, you want to buy clothes from China and sell them in
Vietnam. If you can the clothes from the producer (primary market).
If you sell the clothes to some shops in Vietnam (secondary market)

Terminology Key Concepts and Skills

• Role of the financial manager

• CFO (Chief Financial Officer)
• Sole Proprietorship • Corporation classifications
• Partnership • Goal of financial management
• C-, S-, and LLC Corporations • Potential conflicts between
• “Agency” Problem financial managers and
shareholders

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What are the most important

topics of this chapter?

1. The CFO’s role in a corporation.

2. Why does the corporation

classification matter?

3. Corporate manager’s possible

conflicting goal with the
owners of the company.

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