5705% Equity
If how you slice the pie affects the size of the pie, then the capital struቤተ መጻሕፍቲ ባይዱture decision matters.
1-9
Hypothetical Organization Chart
Board of Directors Chairman of the Board and Chief Executive Officer (CEO)
Shareholders’ Equity
1-5
The Balance-Sheet Model
of the Firm
The Capital Budgeting Decision
Current
Current Assets
Liabilities
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
Cost Accounting Data Processing
1-10
The Financial Manager
To create value, the financial manager should: 1. Try to make smart investment decisions. 2. Try to make smart financing decisions.
How much shortterm cash flow does a company need to pay its bills?
Shareholders’ Equity
1-8
Capital Structure
The value of the firm can be thought of as a pie.
The goal of the manager is to increase the size of the pie.
The Capital Structure decision can be viewed as how best to slice up a the pie.
2750%50%30% DebtDeEbtquity
of the Firm
The Net Working Capital Investment Decision
Current
Current Assets
Net Working Capital
Liabilities
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
President and Chief Operating Officer (COO)
Vice President and Chief Financial Officer (CFO)
Treasurer
Controller
Cash Manager
Credit Manager
Tax Manager
Capital Expenditures Financial Planning Financial Accounting
Liabilities
Fixed Assets 1 Tangible
How can the firm raise the money for the required investments?
2 Intangible
Long-Term Debt
Shareholders’ Equity
1-7
The Balance-Sheet Model
Total Firm Value 1.3 The Corporate Firm 1.4 Goals of the Corporate Firm 1.5 Financial Markets 1.6 Outline of the Text
1-3
What is Corporate Finance?
Corporate Finance addresses the following three questions:
McGraw-Hill/Irwin Corporate Finance, 7/e
1-1
CHAPTER
1
Introduction to Corporate Finance
1-2
Chapter Outline
1.1 What is Corporate Finance? 1.2 Corporate Securities as Contingent Claims on
What longterm investments should the firm engage in?
Shareholders’ Equity
1-6
The Balance-Sheet Model
of the Firm
The Capital Structure Decision
Current
Current Assets
1. What long-term investments should the firm engage in?
2. How can the firm raise the money for the required investments?
3. How much short-term cash flow does a company need to pay its bills?
1-4
The Balance-Sheet Model
of the Firm
Total Value of Assets:
Total Firm Value to Investors:
Current
Current Assets
Liabilities
Long-Term Debt
Fixed Assets 1 Tangible 2 Intangible
1-11
The Firm and the Financial Markets
Firm
Firm issues securities (A)
Invests in assets
(B)
Retained cash flows (F)
Current assets
Cash flow Dividends and
Fixed assets from firm (C) debt payments (E)