All Rights ReservedIntro & Chapter 11 Corporate Finance Fin 335 Introduction & Chapter1 Dr. David P. Echevarria University of North Carolina – Wilmington Cameron School of Business Spring, 2013

All Rights ReservedIntro & Chapter 1Page 2 Tips on getting through the CF course before A.Skim read the assignments before class 1.Finance is a very precise set of procedures and formulas which if not followed leads to poor analysis and incorrect answers. 2.Reading the material the night before the exam will invariably lead to a poor grade. B.Keep up with the homework as assigned. 1.Practice helps to understand 2.Practice also helps with exams.

All Rights ReservedIntro & Chapter 1Page 3 Tips on getting through the CF course C.More tips on getting through finance 1.Don’t spend time trying to memorize formulas. Understanding concepts Understanding concepts is much more important Formula sheet will be provided with each exam Doing the homework Doing the homework helps to understand how the concepts are applied to solving finance problems. 2.Learn to use a financial calculator (TI BA II +) You’ll be taught how to analyze: car leasing deals, mortgages, retirement planning, and other wealth-relevant analysis.

All Rights ReservedIntro & Chapter 1Page 4 General Information A.Attendance 1.Finance lectures involve lots of material. Missing classes results in poor exam performance. B.Class Participation 1.Finance is one of the most difficult courses you will take. ASK QUESTIONS! 2.That’s why corporations pay some of the highest salaries to those who have mastered the finer points of financial analysis & management.

All Rights ReservedIntro & Chapter 1Page 5 General Information C.Course Syllabi and Lecture Notes 1.My UNCW web page: Course Related Information Course notes require Adobe Reader Hyperlinks to business related web sites. D. 1.I use to communicate important information to students. Make certain your account is able to receive mail.

All Rights Reserved Intro & Chapter 1 Page 6 A Thought on Exams A.Things Happen! 1.Take the responsible approach – keep up with the work (reading and homework) 2. me before the exam – we’ll work something out. 3.Failure to do so means you take Version 2 (the nightmare version).

All Rights ReservedIntro & Chapter 17 Overview of Business Finance Chapter 1 Goals of Financial Managers Functions of Financial Management Types of Business Organizations

All Rights ReservedIntro & Chapter 1Page 8 What’s this course about? A.This course is about how companies manage their capital assets and liabilities. 1.Cash and Cash Equivalents, Receivables, and Inventory 2.Plant, Property, and Equipment investments 3.Short- and Long-term debt 4.Taxes (Federal, State, Foreign)

All Rights ReservedIntro & Chapter 1Page 9 What’s this course about? B.This course is also about how companies analyze their performance 1.Profitability: Controlling Costs 2.Asset Management: Cash, Receivables, Inventory, Physical Assets 3.Capital Structure: mix of debt and equity – Maintain adequate solvency

All Rights ReservedIntro & Chapter 1Page 10 Goals of Financial Managers A. Maximizing Stockholder Wealth. 1.Maximize stock price consistent with… 2. Minimize risk (reduce volatility of earnings) B. Earn Economic Profits. 1. Economic Profit is a cash-basis concept. 2. Economic profits = Accounting Profits minus Opportunity Cost of Invested Capital. OCIC = what you could [or must] earn elsewhere

All Rights ReservedIntro & Chapter 1Page 11 Functions of Financial Management A. Investment/Capital Budgeting Decisions 1. Selecting from among competing investment choices. 2. Allocating capital to value enhancing projects. B. Financing Decisions 1. Tapping capital markets. 2. Capital structure decisions. 3. Working capital management (WCM). C. Dividend Policy 1. Retention versus payout. 2. Tax considerations.

All Rights ReservedIntro & Chapter 1Page 12 BUSINESS ORGANIZATIONS A. Sole proprietorships 1. Maximum personal liability % of total sales, 25% of total profits (USA). 3. Limited access to financial markets. B. Partnerships 1. Personal liability depends on circumstances; 2. 10% of total sales, 10% of total profits. 3. Partnership articles are very important! C. Corporations 1. Minimum personal liability to providers of capital % of total sales; 65% of total profits.

All Rights ReservedIntro & Chapter 1Page 13 Agency and Ethics Agency –Dealing with manager – owner conflicts –Control via contracts, annual meetings Corporate Ethics –SEC and State Regulatory oversight –GAAP vs. Cleverly Rigged Accounting Ploys –Sarbanes-Oxley (2002)

All Rights ReservedIntro & Chapter 1Page 14 Homework Assignment A. When is a stock’s price considered to be in equilibrium? B. Job #1 for managers is maximizing the value of the firm. How do they accomplish this task? C. What are the Three major forms of business organization? What are the principal advantages/disadvantages?