代写assignment-代写留学生作业-Finance assignment代写-Principles of Fina

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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
1
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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7
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
13
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
18
Corporate Structure
Sole Proprietorships
Corporations
Partnerships
Limited Liability
Corporate tax on profits +
Personal tax on dividends
Unlimited Liability
Personal tax on profits
ECF5220 Principles of Finance – Note 1
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19
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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25
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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31
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
ECF5220 Principles of Finance – Note 1
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37
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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43
 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