1.Types of Business Organization:1)Sole Proprietorship :an unincorporated business owned by one person2)Partnership :owned by two or more individuals (called partners)a)Limited partnership——general partners,limited partners3)Corporation :a legal entity separate from its owners2、Separation of Ownership and Control (pros and cons)：Pros(赞成的理由): Specialization，Efficiency，Diversify，Going concernCons(反对的理由)：Four major downsides：agency problem,free-riding problem,increased costs of information rmation asymmetry3.Overview of Financial Statementsbalance sheet; income statement;statement of cash flows;statement of retained earnings4. Statement of Retained Earnings,it shows:the retained earnings balance at the start of the period;how much the firm earned (net income);how much dividends the firm paid;how much net income was reinvested back into the firm (retained earnings);any repurchases of the firm’s stock;any new issues of the firm’s stock; andthe retained earnings balance at the close of the period.4. Statement of Cash Flow:Operating Cash Flows ，Investing Cash Flows ，Financing Cash Flows5.Analyzing Financial RatiosFinancial ratios are not standardized. Analyzing a single financial ratio for a given year may not be very useful. Some of a firm’s financial accounting practices or choices will affect its financial statements and, finally, its financial ratios. Financial ratios do not provide analysts with all of th e answers about a firm’s condition.7. Uses and Limitations of Financial Ratio Analysis：while ratio analysis can provide useful information concerninga company’s operations and financial condition, it does have limitations that necessitate care and judgment1.Risk-return tradeoffInvestors will take on additional risk only if they anticipate high return.2.Time value of moneyA dollar available today is worth more than a dollar available at a future date. This is because a dollar today can be invested to earn a return.3.Types of valueGoing-concern value,Liquidation value ,Book value ,Market value ，ntrinsic value4.Valuation Approachesdiscounted cash flow (DCF) valuation，relative valuation，contingent claim valuation，option-pricing models 7.Contractual Provisions of a Typical BondPar Value,and Coupon Rate,Maturity,Call Provisions,Sinking Fund Provisions,Conversion Rights,Put Provisions,Indenture,Trustee,Collateral,Bond Rating1.Introduction to Risk and ReturnAll financial assets are expected to produce cash flows, and the risk of an asset is judged by the risk of its cash flows. Here are two assumptions about risk and return: Assumption (1): The returns from investments are normally distributed.Assumption (2): Investors are risk-averse. The risk of an asset can be considered in two ways: (1) on a stand-alone basis (2) in a portfolio context. In a portfolio context, an asset’s risk can be divided into two components: a,diversifiable risk ;b. market risk.An asset with a high degree of relevant (market) risk must providea relatively high expected rate of return to attract investors.4.Efficient Market Hypothesis (EMH)Assumption 1:The returns from investments are normally distributed.Assumption 2: Investors are risk-averse.Assumption3:Investorsare rational.Assumption4:Investors are price takers.Assumption 5: The Efficient Market Hypothesis (EMH) holds.5. Three types of financial market efficiency:allocationally efficient, operationally efficient,informationally efficient6. Three main factors associated with informational market efficiencyThe type of information to which the market price reacts,The speed at which the market price reacts to information,The degree to which market participants over-or under-react to information8. Characteristics of an Informationally Efficient MarketPrice changes cannot be predicted. The price of the asset is equal to its fundamental (unobserved but true) value.Prices change due to the inflow of new information, and information flows randomly to the market.Therefore, price changes should be random and unpredictable.10. Modern portfolio theory —Markowitz’s Mean-variance Framework ,Efficient portfolios are those that have: the lowest risk for an expected rate of return; or the highest expected rate of return for a given level of risk.The assets that meet these criteria make up the efficient frontier.1, Guidelines for Estimating Project Cash FlowsIdentify Incremental Cash Flows ,Focus on After-tax Cash Flows ,Postpone Considering Financing Costs ,Other Cash Flow Considerations:①Sunk Costs,②Opportunity Costs,③Allocated Overhead,④Residual Value,⑤Side Effects2.Investment Rules:Net Present Value (NPV) ,Profitability Index (PI),Internal Rate of Return (IRR) ,Payback Period (PP),Discounted Payback Period (DPP)3. Analyzing Project Risk:Sensitivity Analysis——Sensitivity analysis involves assessing the effect of changes or errors in the estimated variables on the net present value of a project. Break-even Analysis——Break-even analysis is a form of sensitivity a nalysis. Sensitivity analysis generally involves finding answers to “what if ” questions. Simulation——simulation allows a manager to consider the effects of changing all the variables whose values are uncertain.4. What is post-audit?comparing actual resu lts with those predicted by the project’s sponsors; explaining why any differences occurred.5.Two main purposes of the post-audit:Improve forecasts ,Improve operations1. The Role of Financial Markets:Help channel funds from suppliers to demanders. Provide a resale market. Set market prices and rates of return.2. Types of Financial Markets :Money Markets vs. Capital MarketsPrimary Markets vs. Secondary marketsPrivate Markets vs. Public Markets3. Three major services by investment banks:Advising ,Underwriting ,Marketing4. Advantages of Going PublicBroaden a firm’s access to capital market;Increase the liquidity of a firm’s stock.Set a value for a firm’s shares. Increase a firm’s ability to attract management.5. Disadvantages of Going PublicDilution of control;Costs; Disclosure of operating data; Possible inactive trading.6,Different methods of Issuing New Securities :Public offer:the sale of an issue of securities to the public, Cash offer ,Rights offer:also called a privileged subscripti on, involves initially offering the securities to the firm’s existing stockholders.8. The cost of capital is the rate that the firm has to pay, explicitly or implicitly, the investors for their capital or the minimum rate of return required by the suppliers of capital.e of the Cost of Capital in two major ways:To help identify the discount rate to be used to evaluate proposed capital investments;To serve as a guideline in developing capital structure and evaluating financial e10. Capital Components:various types of debt,preferred stock,common security12.Measuring a company’s WACC involves two major steps:estimating the cost of each capital component; determining the weights of each component. Multiplying each capital component by its weight in the capital structure and then summing the percentages produce an estimate of the WACC.5. Capital Structure and the Value of a Firm：The Modigliani-Miller Theorem ,Tradeoff Theory of Optimal Capital Structure ,Pecking Order Theory of Capital Structure6. Checklist for Capital Structure Decisions：Sales stability,Asset structure,Operating leverage,Growth rate,Profitability,Taxes,Control Management attitudes ,Lender and rating agency attitudes,Market conditions ,The firm’s internal conditio n ,Financial flexibility1. Types of Dividends:(1)Cash Dividends (2) Stock Dividends (3)Property Dividends2.Factors Influencing the Dividend Decision:Shareholder factors: (1)Income Needs (2) Risk Preferences (3)Tax Status (4) Dilution of OwnershipFirm factors: (1)Stage of Life Cycle (2)External Financing Costs (3)Access to Funds and Reserves (4)Profitability and Earning StabilityOther constraints3. Dividend Policies:Residual Dividend Policy,Stable Dollar Dividend policy,Constant Dividend Payout Ratio,Low Regular plus Specially Designated Dividends5. Reasons for Stock BuybacksIf a company is sitting on a large sum of cash and must decide how to invest it, one of the options is to distribute part of it to shareholders by buying up outstandin g shares. If a company’s stock is suffering from low financial ratios, buying back stock can give some of the ratios a temporary boost. Another reason companies buy back stock is to cover large employee stock option programs (ESOP). Some companies buy back shares as protectionagainst unfriendly takeovers from other companies.2. Approaches to Working Capital Managementrelaxed or conservative approach ,restricted or aggressive approach ,moderate approach3. Cash Management involves three major decision areas:Determining appropriate cash balances;Investing idle cash;Managing collections and disbursements.4.Three Motives for Holding Cash:Speculative Motive,Precautionary Motive,Transaction Motive5.Types of Money Market SecuritiesUS Treasury Bills ,Short-term tax exempt instruments ,Commercial paper ,Negotiable certificates of deposit (CDs) ,Bankers’ acceptances ,Repurchase agreement6. The three principal sources of delay are:Mail float: the time when a check is in the mail;Processing float: the time required to process a check after it is received; Clearing time float: the time required for a check to clear through the banking system and to reduce the paying firm’s account.7. Successful Inventory Management :Maintaining a wide assortment of stock, —but not spreading the rapidly moving ones too thin;Increasing inventory turnover, —but not sacrificing the service level;Keeping stock low, —but not sacrificing service or performance;Obtaining lower prices by making volume purchases, —but not ending up with slow-moving inventory; andHaving an adequate inventory on hand, — but not getting caught with obsolete items.2.Corporations expand beyond their domestic borders for many reasons, including:To gain access to new markets,To achieve production efficiency,To gain access to resources,To reduce political and regulatory hurdles,To diversify,To gain access to technology3.Quotation :direct quotation ,indirect quotation,Exchange rate system4.floating exchange rate system :fixed exchange rate system ,managed floating exchange rate system .6. An international firm can finance foreign projects in three basic ways:It can raise cash in the home country and export it to finance the foreign project.It can raise cash by borrowing in the foreign country where the project is located.It can borrow in a third country where the cost of debt is the lowest.。