【正文】 CHAPTER 1Overview of Corporate Finance and the Financial Environment? Corporate finance– Forms of business anization– Objective of the firm: Maximize wealth– Determinants of stock pricing? The financial environment– Financial instruments, markets and institutions– Interest rates and yield curvesWhy is corporate finance important to all managers?? Corporate finance provides the skills managers need to:– Identify and select the corporate strategies and individual projects that add value to their firm.– Forecast the funding requirements of their pany, and devise strategies for acquiring those funds.? Sole proprietorship? Partnership? CorporationWhat are some forms ofbusiness anization?? Advantages:– Ease of formation– Subject to few regulations– No corporate ine taxes? Disadvantages:– Limited life– Unlimited liability– Difficult to raise capitalSole Proprietorship? A partnership has roughly the same advantages and disadvantages as a sole proprietorship.Partnership? Advantages:– Unlimited life– Easy transfer of ownership– Limited liability– Ease of raising capital? Disadvantages:– Double taxation– Cost of setup and report filingCorporation? The primary objective should be shareholder wealth maximization, which translates to maximizing stock price.– Should firms behave ethically? YES!– Do firms have any responsibilities to society at large? YES! Shareholders are also members of society.What should management’s primary objective be?Is maximizing stock price good for society, employees, and customers?? Employment growth is higher in firms that try to maximize stock price. On average, employment goes up in: – firms that make managers into owners (such as LBO firms)– firms that were owned by the government but that have been sold to private investors? Consumer welfare is higher in capitalist free market economies than in munist or socialist economies.? Fortune lists the most admired firms. In addition to high stock returns, these firms have:– high quality from customers’ view– employees who like working there? Amount of cash flows expected by shareholders? Timing of the cash flow stream? Risk of the cash flowsWhat three factors affect stock prices?? Sales revenues– Current level– Shortterm growth rate in sales– Longterm sustainable growth rate in sales? Operating expenses (., raw materials, labor, etc.)? Necessary investments in operating capital (., buildings, machines, inventory, etc.) What factors determine of cash flows?What factors affect the level and risk of cash flows?? Decisions made by financial managers:– Investment decisions (product lines, production processes, geographic market, use of technology, marketing strategy, etc.)– Financing decisions (choice of debt policy and dividend policy) ? The external environment (taxes, regulation, etc.)What are financial assets?? A financial asset is a contract that entitles the owner to some type of payoff.– Debt– Equity– Derivatives? In general, each financial asset involves two parties, a provider of cash (., capital) and a user of cash.What are some financial instruments?Instrument Rate (9/01). Tbills %Banker’s acceptances Commercial paper Negotiable CDs Eurodollar deposits Commercial loans Tied to prime (%) or LIBOR (%)(More . .)Financial Instruments (Continued)Instrument Rate (9/01). Tnotes and Tbonds %Mortgages Municipal bonds Corporate (AAA) bonds Preferred stocks 7 to 9%Common stocks (expected) 10 to 15%Who are the providers (savers) and users (borrowers) of capital?? Households: Net savers? Nonfinancial corporations: Net users (borrowers)? Governments: Net borrowers? Financial corporations: Slightly borrowers, but almost breakeven? Direct transfer (., corporation issues mercial paper to insurance pany) ? Through an investment banking house (., IPO, seasoned equity offering, or debt placement)? Through a financial intermediary (., individual deposits money in bank, bank makes mercial loan to a pany)What are three ways that capital is transferred between savers and borrowers?? Commercial banks? Savings Loans, mutual savings banks, and credit unions? Life insurance panies? Mutual funds? Pension fundsWhat are some financial intermediaries?The Top 5 Banking Companiesin the World, 12/1999Bank Name Country Total assetsDeutsche Bank AG Frankfurt $844 billionCitigroup New York $717 billionBNP Paribas Paris $702 billionBank of Tokyo Tokyo $697 billionBank of America Charlotte $632 billionWhat are some types of markets?? A market is a method of exchanging one asset (usually cash) for another asset.? Physical assets vs. financial assets? Spot versus future markets? Money versus capital markets? Primary versus secondary marketsHow are secondary markets anized?? By “l(fā)ocation”– Physical location exchanges– Computer/telephone works? By the way that orders from buyers and sellers are matched– Open outcry auction– Dealers (., market makers)– Electronic munications works (ECNs) Physical Location vs. Computer/telephone Networks? Physical location exchanges: ., NYSE, AMEX, CBOT, Tokyo Stock Exchange? Computer/telephone: ., Nasdaq, government bond markets, foreign exchange marketsAuction Markets? NYSE and AMEX are the two largest auction markets for stocks. ? NYSE is a modified auction, with a “specialist.”? Participants have a seat on the exchange, meet facetoface, and place orders for themselves or for their clients。 ., CBOT.? Market orders vs. limit ordersDealer Markets? “Dealers” keep an inventory of the stock (or other financial asset) and place bid and ask “advertisements,” which are prices at which they are willing to buy and sell.? Computerized quota