1. Lecturer: Dr. Zvi Wiener 02-588-3049 mswiener@mscc.huji.ac.il http://pluto.huji.ac.il/~mswiener/zvi.html  Finance and the Financial Manager Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 1 © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill

2. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 2 Main Financial Innovations  Money  Loans  Banks and other intermediaries  Stocks  Derivatives  Risk Management

3. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 3 Topics Covered  What Is A Corporation?  The Role of The Financial Manager  Who Is The Financial Manager?  Separation of Ownership and Management  Financial Markets

4. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 4 Corporate Structure Sole Proprietorships Partnerships

5. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 5 Corporate Structure Sole Proprietorships Partnerships Unlimited Liability Personal tax on profits

6. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 6 Corporate Structure Sole Proprietorships Corporations Partnerships Unlimited Liability Personal tax on profits

7. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 7 Corporate Structure Sole Proprietorships Corporations Partnerships Unlimited Liability Personal tax on profits Limited Liability Corporate tax on profits + Personal tax on dividends

8. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 8 Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (1)

9. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 9 Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (2) Cash invested in firm (1)(2)

10. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 10 Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (1)(2) (3)

11. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 11 Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (1)(2) (3) (4a)

12. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 12 Role of The Financial Manager Financial manager Firm's operations Financial markets (1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (4b) Cash returned to investors (1)(2) (3) (4a) (4b)

13. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 13 Who is The Financial Manager? Chief Financial Officer

14. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 14 Who is The Financial Manager? Chief Financial Officer Comptroller Treasurer

15. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 15 Ownership vs. Management Difference in Information  Stock prices and returns  Issues of shares and other securities  Dividends  Financing Different Objectives  Managers vs. stockholders  Top mgmt vs. operating mgmt  Stockholders vs. banks and lenders

16. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 16 Financial Markets Primary Markets Money

17. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 17 Financial Markets Primary Markets Secondary Markets Money

18. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 18 Financial Markets Primary Markets Secondary Markets OTC Markets Money

19. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 19 Financial Institutions Company Intermediaries Banks Insurance Cos. Brokerage Firms Obligations Funds

20. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw Hill 1- 20 Financial Institutions Intermediaries Investors Depositors Policyholders Investors Obligations Funds