1. FUNDAMENTALS OF CORPORATE FINANCE
TRANSPARENCY ACETATES
to accompany
FUNDAMENTALS OF CORPORATE FINANCE
Fifth Edition
Stephen A. Ross Randolph W. Westerfield Bradford D. Jordan
Prepared by Thomas H. Eyssell
CLICK MOUSE OR HIT SPACEBAR TO ADVANCE
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000

2. Table of Contents Chapter 1 Introduction to Corporate Finance
Chapter 2 Financial Statements, Taxes, and Cash Flow
Chapter 3 Working with Financial Statements
Chapter 4 Long-Term Financial Planning and Growth
Chapter 5 Introduction to Valuation: The Time Value of Money
Chapter 6 Discounted Cash Flow Valuation
Chapter 7 Interest Rates and Bond Valuation
Chapter 8 Stock Valuation
Chapter 9 Net Present Value and Other Investment Criteria
Chapter 10 Making Capital Investment Decisions
Chapter 11 Project Analysis and Evaluation
Chapter 12 Some Lessons from Capital Market History
Chapter 13 Return, Risk, and the Security Market Line
Chapter 14 Cost of Capital
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000

3. Table of Contents (continued)
Chapter 15 Raising Capital
Chapter 16 Financial Leverage and Capital Structure Policy
Chapter 17 Dividends and Dividend Policy
Chapter 18 Short-Term Finance and Planning
Chapter 19 Cash and Liquidity Management
Chapter 20 Credit and Inventory Management
Chapter 21 International Corporate Finance
Chapter 22 Risk Management: An Introduction to Financial Engineering
Chapter 23 Options and Corporate Securities
Chapter 24 Mergers and Acquisitions
Chapter 25 Leasing
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000

4. Chapter 1 Introduction to Corporate Finance
T1.1 Chapter Outline
Chapter 1 Introduction to Corporate Finance
Chapter Organization
1.1 Corporate Finance and the Financial Manager
1.2 Forms of Business Organization
1.3 The Goal of Financial Management
1.4 The Agency Problem and Control of the Corporation
1.5 Financial Markets and the Corporation
1.6 Summary and Conclusions
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Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000

5. T1.2 The Four Basic Areas of Finance
Corporate Finance
Investments
Financial Institutions
International Finance
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Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 1999

6. T1.3 A Simplified Organizational Chart (Figure 1.1)
Board of Directors
Chairman of the Board and
Chief Executive Officer (CEO)
President and Chief
Operations Officer (COO)
Vice President
Marketing
Vice President
Finance (CFO)
Vice President
Production
Treasurer
Controller
Cash Manager
Credit Manager
Cost Accounting
Manager
Tax Manager
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Financial
Accounting
Manager
Capital
Expenditures
Financial
Planning
Data Processing
Manager

7. T1.4 Forms of Business Organization
Organizational Forms
Sole Proprietorship
Partnership
General Partnership / Limited Partnership
Corporation
Limited Liability Company
Legal Considerations
How do owners’ roles differ across organizational forms?
Economic Considerations
Why are corporations generally larger than other forms of business?
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8. T1.5 International Corporations (Table 1.1)
Type of Company
Company Country of Origin In Original Language Translated
Bayerische Germany Aktiengesellschaft Corporation Moterenwerke AG
Dornier GmBH Germany Gesellschaft mit Limited liability co Beschrankter Haftung
Rolls-Royce PLC United Kingdom Public limited company Public limited co.
Shell UK Ltd. United Kingdom Limited Corporation
Unilever NV Netherlands Naamloze Vennootschap Joint stock co.
Fiat SpA Italy Societa per Azioni Joint stock co.
Volvo AB Sweden Aktiebolag Joint stock co.
Peugot SA France Societe Anonyme Joint stock co.

9. T1.6 The Goal of Financial Management
What are firm decision-makers hired to do?
“General Motors is not in the business of making automobiles. General Motors is in the business of making money.”
--Alfred P. Sloan
Possible goals
Three equivalent goals of financial management:
Maximize shareholder wealth
Maximize share price
Maximize firm value
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10. The Agency Problem The agency relationship
T1.7 The Agency Problem
The Agency Problem
The agency relationship
Will managers work in the shareholders’ best interests?
Agency costs
Direct agency costs
Indirect agency costs
Control of the firm
How do agency costs affect firm value (and, therefore, shareholder wealth)?
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11. T1.8 Financial Markets
Financial Markets
What is the role of financial markets in corporate finance?
Cash flows to and from the firm
Money markets and capital markets
Primary vs. secondary markets
How do financial markets benefit society?
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12. T1. 9 Cash Flows Between the Firm and the Financial Markets (Figure 1
Total Value of the Firm
to Investors in
the Financial Markets
Total Value of
Firm’s Assets
A. Firm issues securities
B. Firm invests in assets
Current Assets Fixed Assets
Financial
Markets
Short-term debt
Long-term debt
Equity shares
E. Retained cash flows
F. Dividends and
debt payments
C. Cash flow from
firm’s assets
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D. Government

13. T Chapter 1 Quick Quiz
Quick Quiz
1. Who performs the financial management function in the typical corporation?
2. What are the major advantages and disadvantages of the corporate form of organization?
3. Why is shareholder wealth maximization a more appropriate goal than profit maximization?
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