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Semester 2, 2011-2012
Agenda
Program, Rules of the Game, etc.
Introduction to Finance; BMM Chapters 1-2
Teaching assistant: Ms. Le Dang Thuy Trang See attached documents for End-ofChapter Problems
Textbook: Brealey, Myers and Marcus, Fundamentals of Corporate Finance, 5th edition (2007) (BMM hence forth)
Students not allowed to take the final exam if they fail to fulfill: Two class tests A mid-term test score over 30 points Class participation: Compulsory Minimum attendance requirement: 80% of the classes Active participation: bonus up to 10% of the result of one class test
Class schedule
Lecture
31-Jan
07-Feb 14-Feb 21-Feb 28-Feb 06-Mar 13-Mar 20-Mar 27-Mar 03-Apr 10-Apr 17-Apr 24-Apr
Topic
Introduction to Finance
Time Value of Money and Discounting Valuation of Bonds and Stocks Valuation of Bonds and Stocks (cont.) Financial Evaluation of Capital Investment Projects Financial Evaluation of Capital Investment Projects No lecture Mid-term Exam Introduction to Risk, Return and Opportunity Cost of Capital Risk, Return and Capital Budgeting Capital structure and Cost of Capital Capital structure and Cost of Capital (cont.) Review
Reading
BMM 1 & 2
BMM 4 BMM 5 & 6 BMM 5 & 6 BMM 7 BMM 8
Supply
Current Capital
Future Payments
Demand
Capital
Investors
Securities
Firms
[Primary market]
[Secondarymarket]
Value
Value
Investment Decisions (Capital Budgeting) Financing Decisions (Capital Structure) Working capital management
Price (1000 VND) Book value per share (1000 VND) P/E Beta coefficient Earnings per share (1000 VND) Market Cap (billion VND)
Organizing a business
Types of Corporations
Public Companies Private Corporations Limited Liability Corporations (LLC)
Corporation
Shareholders Usually
Unlimited
Unlimited
Limited
No
No
Yes
The Corporation
Shares of Stock (owners capital) Limited Liability Separation of Ownership and Management. Who controls the corporation? Problem field of Corporate Governance Primary Goal: Maximize Wealth (of owners =shareholders) Maximize Market Value of the Firms Equity The Agency Problem
Financial sector
Financial Markets
Real sector
Markets for Prod. Factors & Products
Investors
Firms
Reflective
Value Creation
Firm's Operations
Real assets
(2)
(1)
Financial Manager
(3)
(4a)
Investors
Financial assets
(4b)
(1) Investors buy shares with cash (2) Cash is invested (3) The firm generates cash (4a) Cash reinvested (4b) Cash returned to investors
Financial markets
Firm's Operations
Real assets
Financial Manager
Financial
Intermediaries
Investors worldwide
Payment mechanism
Providing liquidity Re-allocating & pooling of risks Providing information through market prices
Terminology:
Market
Valuation Model!
VN-INDEX
How to value an asset: bond, stock, or investment project Cash flows expected Timing of the cash flows Risk of the cash flows Relationship between risk and return of an investment? (Opportunity) cost of capital: the minimum accetable rate of return on capital investment Value maximization and the cost of capital