This document contains lecture slides for a corporate finance course. It includes sections on course introductions and goals, key terminology, the flow of cash in a firm, foundations of present value calculations, bond and mortgage rates, agency problems between managers and shareholders, and a review of upcoming chapters and a quiz. The document provides an overview of topics to be covered in the corporate finance course.
This document contains lecture slides for a corporate finance course. It includes sections on course introductions and goals, key terminology, the flow of cash in a firm, foundations of present value calculations, bond and mortgage rates, agency problems between managers and shareholders, and a review of upcoming chapters and a quiz. The document provides an overview of topics to be covered in the corporate finance course.
This document contains lecture slides for a corporate finance course. It includes sections on course introductions and goals, key terminology, the flow of cash in a firm, foundations of present value calculations, bond and mortgage rates, agency problems between managers and shareholders, and a review of upcoming chapters and a quiz. The document provides an overview of topics to be covered in the corporate finance course.
This document contains lecture slides for a corporate finance course. It includes sections on course introductions and goals, key terminology, the flow of cash in a firm, foundations of present value calculations, bond and mortgage rates, agency problems between managers and shareholders, and a review of upcoming chapters and a quiz. The document provides an overview of topics to be covered in the corporate finance course.
INTRODUCTION Spring 2017 FNCE 611/614 Prof. Stephan Dieckmann
NAME OF INITIATIVE OR GROUP
U.S. Stocks Hit Record Close
Performance over the last year
U.S. Stocks Hit Record Close
Performance compared to DAX
Macys Inc. Performance over the last 3 months
Shake Shack Inc.
Performance over the last year
What are the goals of a shareholder?
Shareholders (the owners of a corporation) typically want several things:
1. To be as rich as possible, that is, to maximize his or her current wealth. 2. To transform that wealth into the most desirable time pattern of consumption either by borrowing to spend now or investing to spend later. 3. To manage the risk characteristics of that consumption plan. And what can (or should) financial managers do to help the shareholders achieve their goals?
Corporate Finance Some Terminology
Real assets, assets used to produce goods and services.
Financial assets, financial claims to the income generated by the
firms real assets.
Investment decision, purchase of real assets.
Financing decision, sale of financial assets.
Corporate Finance Flow of Cash
(2)
Firm's
Financial
operations
manager
(3)
(1)
(4a)
Financial markets
(4b)
What are the goals of this course?
FNCE 614 / first half of FNCE 611 1. We study how to calculate the present value of cash flows, allowing us to determine the value of bonds and stocks, and to understand the basic rules for investment decisions. 2. A financial manager wants to know about a good measure of risk for their firm, and we formally introduce portfolio theory and the capital asset pricing model. second half of FNCE 611 3. An overview of financing instruments; we study how corporations issue securities, and discuss what information market participants seem to care about. 4. We cover debt and payout policies and what ingredients to consider in the firms capital structure decision. Last but not least, there will be an introduction to option markets. 9
Foundations of Present Values
Preview We said that shareholders would like to transform their wealth into the most desirable time pattern of consumption. But how can they do that?
10
Foundations of Present Values
Preview We said that shareholders would like to transform their wealth into the most desirable time pattern of consumption. Suppose you have $100 today. Consumption Tomorrow
Slope?
$110
$1.1 $1
$100 11
Consumption Today
Bond Markets U.S. Treasury yields over the last 3 months
12
Sudden Surge U.S. 30-year fixed mortgages rates
13
Agency Problems Roots Shareholders cannot fully control what managers do. Agency problems occur when managers do not act in shareholders interest, but in their own interest.
Agency costs incur when
1. managers do not attempt to maximize firm value, and 2. shareholders incur costs to monitor the managers and constrain their actions.
Some claim that the economic crisis of 2007 2009, which started in the mortgage industry, was largely an agency problem.
14
Agency Problems Mitigation Good systems of corporate governance try to mitigate such agency problems. Some of the characteristics include
Legal and Regulatory Requirements
Compensation Plans Board of Directors Monitoring Takeovers Shareholder Pressure
15
Introduction Review and Preparation To review this class, please study BMA Chapters 1.1 and 1.2. To prepare for the next class, a quiz is due at midnight Jan 11.
