代写assignment-代写留学生作业-Finance assignment代写-Principles of Finance-Corporate Finance
代写澳洲assignment ECF5220 Principles of Finance – Note 1
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ECF5220
Principles of Finance
Lecture 1
Dr Lee K. LIM
(08) 6304 5599
Mr Patrick CHAMBERLAIN
(08) 6304 2094
Objectives
Understand the principles of financial
management and the roles of the principal
participants in the financial arena.
Have an awareness of the investment decision
and the financing decision and the difference
between them
Understand the relationship between financial
institutions and markets.
2
Successful completion of this week’s work
should enable you to
Areas of Study in Finance
Corporate Finance
How a business acquires and employs
(invests) funds?
Capital required to undertake the company’s
functions
Other areas of finance:
Financial markets and institutions
Investments (property, shares and business)
Personal Finance
Risk Management – options 3 4
Principles of Finance
Finance from a business perspective
The how and the why of business
finance:
Tools to assist company managers in
their financial decision making
Theories about why companies make
the decisions they do
Global Financial Crisis
> 40% drop in the market price index
What are the causes? Its impact on the markets?
5
3000
3500
4000
4500
5000
5500
6000
6500
7000
1/01/2008 10/04/2008 19/07/2008 27/10/2008
Australia: All Ordinaries
Jan 2008 - Dec 2008
7000
8000
9000
10000
11000
12000
13000
14000
15000
1/01/2008 10/04/2008 19/07/2008 27/10/2008
US: Dow Jones
Jan 2008 - Dec 2008
Source: Datastream international database
6
Global Financial Crisis Impact on
Financial Institutions
ECF5220 Principles of Finance – Note 1
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November 1/11/2007 to 20/11/2008
All Ordinaries
Financial Year 2008/09
S&P ASX 200
What will be the long-term impact?
51%
24.2%
Global Financial Crisis Impact on
Pension Funds
8
Unit Contents
Weeks 1 - 3
Important financial concepts
Introduction to finance, Financial mathematics,
Valuation of bonds and shares
Weeks 4 - 7
The investment decision
Investment evaluation, Investment decision making
Week 8 – 11
The financing decision
Cost of capital, Capital structure decision, Dividend
policy, Current assets management
Week 12
The debate about investment decisions
Efficiency market hypothesis & Behavioural finance 9 10
The Unit Plan
Lecturer/Tutor information
Weekly teaching process
Lecture Materials
Tutorial work
Assessment
Blackboard
Textbook
Other readings
Calculators
Formula sheet
11
How you will be assessed?
Assignment 1
(Four online
assessment exercises)
15%
Three days to
complete each
exercise
Assignment 2
(case study)
25% Due Week 10
Final Exam 60%
Unit Website
ECU homepage
Student Portal
MyECU (Blackboard)
– Login
Lecture notes, Tutorial solutions,
Assignments (online assessment exercises
& case study), Announcements, Other
reading materials, Past exam papers &
solutions
12
ECF5220 Principles of Finance – Note 1
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Textbook
Gitman, L.J., Juchau., R.H., &
Flanagan, J. (2008), Principles of
managerial finance (5th ed.)
Additional reading materials
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Calculator
Hewlett Packard: HP10BII
Formula sheet
Will be provided in the final exam
http://www.pearson.com.au/Catalogue/TitleDetails.aspx?isbn=9780733984006
Role of the financial manager
Forms of business organisation
Goal of the firm
Key principles in finance
Economic role of government,
financial markets and institutions
Week 1 - Introduction
14
15
Role of the Financial Manager
Financial
manager
Firm's
operations
(1) Cash raised from investors
(2) Cash invested in firm
(3) Cash generated by operations
(4a) Cash reinvested
(4b) Cash returned to investors
Financial
markets
16
The Corporate Financial
Manager
Performs two main roles:
acquires the necessary funds
ensures that they are used effectively
Two key corporate financial
decisions:
17
Forms of Business Organisation
Sole proprietor
where company is owned and managed by
one person
Partnership
2 or more people operating business as
partners
Corporation
Separate legal entity, limited liability (usually)
Privately Owned
Publicly Owned
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Corporate Structure
Sole Proprietorships
Corporations
Partnerships
Limited Liability
Corporate tax on profits +
Personal tax on dividends
Unlimited Liability
Personal tax on profits
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Public Corporations
Separation of ownership from
control
Advantages
access to capital
professional management
Disadvantages
the agency problem
20
Agency Costs
Costs associated with potential conflict
between managers and shareholders
Residual Loss - reduced value due to
managers acting in own best interest
Monitoring Costs - costs incurred by the
principal associated with monitoring managers’
behaviour
Bonding Costs - costs incurred by the
agent associated with demonstrating their
alignment with principals
21
Goal of the Firm
Profit maximisation?
Project A Project B
Year 1 $ 2,000 $ 6,000
2 $ 4,000 $ 4,000
3 $ 6,000 $ 2,000
$12,000 $12,000
Which project will you choose?
22
Goal of the Firm
Shareholder wealth maximisation?
The same as:
Add value to the firm = Debt + Equity
Increases if return is greater than the
investment after allowing for risk
Maximise share price
assumes public company, listed on stock
exchange, ownership through share issues
23
Two Key Principles in Finance
Optimal financing and investment
decisions must recognise and allow
for:
Cash flows through time
The time value of money
Risk
The RISK/RETURN trade-off
Some Practical Questions
Regarding The Risk Of An
Investment
Can we lose money from this
investment?
Will this investment do better than
the market average?
What is the spread of possibilities?
All of these questions relate to what
we call risk
24
ECF5220 Principles of Finance – Note 1
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Investment Risk Spectrum
High
Return
Low
Return
Low Risk High Risk
Govt
Bonds
Money
Market
Corporate
Bonds
Blue Chip Shares
Speculative Shares
Drug Dealing
Bank Robbery
Gambling
Geared Derivatives
Adapted from
“The Australian
Stockmarket”
Bennetts (1999)
26
Debate About Corporate Goals
Is shareholders’ wealth the only
goal?
Should other stakeholders in the
company be considered?
Does the firm have a social
responsibility?
Should this be paid for by the
shareholders?
27
Participants in the Financial
Arena
The firm
Objective –
The investor/consumer
Objective –
The market
Objective – facilitate interaction, allow
firms and investors to make optimal
decisions
28
Participants in the Financial Arena
Source: Besley, S., Brigham, E.F. (2008). Essentials of managerial finance. (14th ed). Mason, Ohio: Thompson South-Western.
29
Assumptions Underlying the
Finance Paradigm
Economic agents are rational &
seek to maximise individual utility
Individuals prefer more returns
than less returns, but also prefer
less risk than more risk
30
Role of Financial Intermediaries
Transfer from saving-surplus units
to saving-deficit units
From those who have funds to those
who need funds
Facilitate transfer of ownership of
financial assets
Debt and equity
Resolve mismatches
ECF5220 Principles of Finance – Note 1
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The Financial Intermediation Process
Source: Besley, S., Brigham, E.F. (2008). Essentials of managerial finance. (14th ed). Mason, Ohio: Thompson South-Western.
32
Primary and Secondary Markets
Primary market
Where new financial assets are created
Transaction between issuer and investor
Examples
Floating of a company’s shares
A new issue of bonds by a company or
government
Secondary market
Where financial assets are traded
Transaction between one investor and
another
Example – A stock exchange
33
Types of Securities
Treasury Bills and Treasury Bonds
Corporate Bonds
Preference Shares
Ordinary Shares
Which of these are RISKY?
Which promise HIGH RETURNS?
Is there a relationship between RISK
and RETURN? 34
Types of Securities – A Broad
Outline
35
Capital Market & Money Market
Capital Markets
All institutions and procedures that facilitate
transactions in long term financial
instruments
It is the longer term debt and equity markets
together which form the capital market
Money Market
All institutions and procedures that facilitate
transactions in short term financial
instruments
36
The Main Players
Government
Central Bank
Banks
Stock Exchange
Other financial institutions
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The Role of Government
Economic policy
Formulation and statement
Legislative regulation
Making the laws
Borrower and lender of funds
Government bonds and notes
38
The Role of the Central Bank
Link between government and
the markets
Monetary management
Financial stability
Regulation and supervision
Australian Prudential Regulation
Authority (APRA)
39
The Banks
Major providers to business and
individuals
Lend and borrow both short and
long-term
Investment management
Corporate financial advice
Trading banks vs investment banks
40
How do brokers/ investment
bankers help firms issue
securities?
Advising the firm
Underwriting the issue
Distributing the issue
Enhancing Credibility
Broking & Investment
Banking
41
The Stock Exchange
Provides secondary market for
equity and longer term debt
Dealing via stockbrokers
Supervisory function
Strong links to primary market
42
Other Financial Institutions
Non-bank financial institutions –
credit unions, building societies
Insurance companies – life and
other
Investment companies and
managed funds
Pension (superannuation) funds
ECF5220 Principles of Finance – Note 1
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Role of the financial manager
Forms of business organisation
Goal of the firm
Key principles in finance
Economic role of government,
financial markets and institutions
Summary
44
Next Week
Mathematics of Finance
Time value of money
Use of financial calculator