THEORY SUMMARY

BMCF 5103 CORPORATE FINANCE Dr. Nguyen Thi Hoang Anh
Lecture 1: An Introduction to Corporate Finance

Contents

What is finance?
What is corporate finance?
The balance-sheet model of the firm
Capital budgeting
Capitalstructure
The firm and thefinancial markets
Forms of business organisation
The goals of a corporation
Agency relationships: stockholders versusmanagers, stockholders versus creditors
Managers’ actions to maximise stockholder wealth
Financial management and the firm

Reading

Brigham, E., and J. Houston, 2007, Fundamentalsof Financial Management, 11thedition,South-Western. Chapter 1.
Ross, S., Westerfield, R. andJaffe(2010),Corporate Finance, 9thedition, McGraw−Hill, Chapter 1.

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What is finance?

Financeasweknowittodaygrewoutofandliesbetweeneconomicsandaccounting,sopeoplewho work in finance need knowledge of those two fields

Finance inan organisation:

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What is finance?

Finance as taught in universities isgenerally divided into threeinterrelated areas

Financial markets and institutions
Concernedwithmarketsforstocks, bondsandotherfinancialassets,andwithfinancialinstitutionsthat operateinthosemarkets,suchasinvestmentbanks,investmentfunds,brokeragecompanies,regulators and government organization

Investments
Relatedtodecisionsconcerningstocksandbondsandincludeanumber ofactivities:(1) Securityanalysis dealswithfindingthe propervaluesofindividualsecurities(i.e.,stocksandbonds),(2)Portfoliotheory dealswiththebestwaytostructureportfolios,or“baskets,”ofstocksandbonds,(3)Marketanalysis dealswiththeissueofwhetherstockandbondmarkets atanygiventimeare“toohigh,”“toolow,”or “about right”

Corporate finance/Financial management/Business finance
Concernedwithdecisions madebyfirmsaboutrealinvestments,theraisingofcapitalandthedistribution of profits

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What is corporate finance?

Corporate finance addresses the following questions:

What long-term investments should