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corporate finance
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ReferencesApplied Corporate Finance: A Users Manual (Second
Edition) by Aswath Damodaran.Ross Stephen A.,(, 8), , 20091
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What is Corporate finance
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2005
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2008
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FINANCE
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1.1
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Corporate finance is a specific area of finance that analyzes
the financial decisions of corporations.
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The Balance-Sheet Model of the Firm
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Current Assets
Fixed Assets1 Tangible2 Intangible
Shareholders Equity
Current LiabilitiesLong-Term Debt
What long-term investments should the firm engage in?The Capital
Budgeting DecisionThe Balance-Sheet Model of the Firm
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How can the firm raise the money for the required
investments?The Capital Structure Decision
Current Assets
Fixed Assets1 Tangible2 Intangible
Shareholders Equity
Current LiabilitiesLong-Term Debt
The Balance-Sheet Model of the Firm
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How much short-term cash flow does a company need to pay its
bills?
The Net Working Capital Investment Decision Net Working
Capital
Shareholders Equity
Current LiabilitiesLong-Term Debt
Current Assets
Fixed Assets1 Tangible2 Intangible
The Balance-Sheet Model of the Firm
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Corporate Financial DecisionsCapital Budgeting (The process of
planning and managing a firm's investments in fixed assets. It is
concerned with the size, timing, and riskiness of cash
flows.Financing Decision The mix of debt and equity used by a firm.
What are the least expensive sources of funds? Is there a best
mix?When and where to raise funds?Working Capital Management
Managing short-term assets and liabilities.How much cash and
inventory to keep around? What is our credit policy? Where will we
obtain short-term loans?
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To create value, the financial manager should:Try to make smart
investment decisions.Try to make smart financing decisions.
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1234
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Sole ProprietorshipPartnershipCorporation
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Sole proprietorship
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( Partnership )
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( Corporation )
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1 2
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1 2
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1.2
1
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2 3 4 5
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1 EPS
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2
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3
=+
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/ // /
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1-1
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1
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2
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(Berle and Means,1932)
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When managers do not fear stockholders, they will often put
their interests over stockholder interests GreenmailGolden
ParachutesPoison Pills When the cat is idle, the mice will play
....
Overpaying on takeovers
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Greenback+blackmail=Greenmail
Greenmail
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Golden Parachutes
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80,1983.,.,20,10%20%,,,Poison Pills
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200521921019.5%(SEC) 13-D13-D
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10422210()37()
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10%2.30.5%0.5%
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SINASINA
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3720%10%1503732169.375
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504819.5%98440644314840649.375406498498419.5%2.28%0.001
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Crown JewelsScorched Earth Policy
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The quickest and perhaps the most decisive way to impoverish
stockholders is to overpay on a takeover. The stockholders in
acquiring firms do not seem to share the enthusiasm of the managers
in these firms. Stock prices of bidding firms decline on the
takeover announcements a significant proportion of the time. Many
mergers do not work, as evidenced by a number of measures.The
profitability of merged firms relative to their peer groups, does
not increase significantly after mergers.An even more damning
indictment is that a large number of mergers are reversed within a
few years, which is a clear admission that the acquisitions did not
work.Overpaying on takeovers
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1A Case Study: Kodak - Sterling
DrugsKodak1988-1-2290.951SterlingSterling30302170%1988122Kodak15%,22
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()150%50%(Roll)1986
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2007590.866.2200749.3%57.15%5661622851748.62986.6963.1
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20092432,2057%,3000,100,
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200844.75
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18 3 12424 158 37
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l
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3Corporate Governance
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(Jensen and Meckling, 1976)
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agency cost
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1 2 3 4 5
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BaysingerButler(Independent Outside Director)(Affiliated Outside
Director)(Inside Director)
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20018
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33.3%35%15%35%
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/+200420071170.41413.523514616.1200720001.4250
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= +
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FIFO
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LIFO
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