These powerboat slides have been adapted from Frank Finn Professor of Finance Tom Smiths (US) teaching material of “Three key finance Ideas of valuation” and DRP. Scott McCarthy teaching material. What Is Finance? ; Every business Is a process of acquiring and disposing assets: real assets and financial assets. ; Finance is a science of valuation and management of assets. ; The field of finance deals with the concepts of time, money, risk and how they are Interrelated.
Two Key Valuation Ideas The Time Value of Money In studying the time value of money, we will see it forms the basis for all asset valuations. In this course, we will study the following aspects of the time value of money: Time Value of Money Financial Mathematics Valuing Stocks Making Investment Decisions Diversification – Financial market participants want to make as much money as possible with the least risk. To reduce risk, market participants can diversify. If everyone diversifies, this tells us something about how assets are priced: it tells us the return required for a given level of risk.
In this course, we will study the relationship between risk and return; portfolio theory, Capital Asset Pricing Model, cost of capitals, and market efficiency. 2 What is corporate finance? ; Corporate finance addresses 3 questions: – what do businesses invest in? – how do businesses fund these investments? – how do businesses manage everyday financial activities? ; In this course we will focus on the first two. 5 ; Examples: ; What do businesses invest in? – machinery, buildings, takeovers (of other businesses) ; How do businesses finance them? Business can raise external funds in two ways. What are these? ; What are examples of these? 6 3 Examples of companies raising funds ; Web links: file on B. “D & E for seminar” – Equity: Fluoroscope & Ten – Debt: Foretaste & Queensland Motorways – Quick background on D & E 7 Types of business organizations ; In this course we will concentrate on large companies. But most of the theories we consider apply across the spectrum of businesses sizes. ; Three major forms in Australia and New Zealand 1. Sole proprietorship 2. Partnership ; General ; Limited 3.
And we know the role of the financial manager is to make investment & financing decisions that lead to this objective. ; This course (FEMINISM) is about developing the models and valuation techniques that allow businesses to do this. 16 ; A problem with the objective? – The agency relationship: considers whether the firm’s (also used interchangeably with business/company) management (who make the day-to-day decisions about running the firm) always act in the interest of the owners. Or do they have their own goals? ; What would be an example of a goal that managers might have that differs from the owners? ; How can we address the agency issue? 17 ; Ethics is a tough one!
