Transcript File - Financial Management

Chapter 1, 2, 3
Review
1.1
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 1
The Role of Financial
Management
1.2
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Major Financial Management
Decisions
 1.
What long-term investments
should you take on?
 2.
Where will you get the long-term
financing to pay for your
investments?
 3.
How will you manage your day-today financial activities such as
collecting from customers and
paying suppliers?
1.3
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Investment Decisions
• How big should the company be?
• What specific assets should be
purchased?
• What assets (if any) should be
reduced or eliminated?
1.4
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financing Decisions
Determine how the assets will be
financed.
• What is the best type of financing?
• What is the best financing mix?
• What is the best dividend policy (e.g.,
dividend-payout ratio)?
• How will the funds be physically
acquired?
1.5
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Asset Management
Decisions
•
How do we manage existing assets
efficiently?
•
Financial Manager has varying degrees of
operating responsibility over assets.
•
Greater emphasis on current asset 流动资产
management than fixed asset 固定资产
management.
1.6
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Goal of the Firm
the stockholder’s point of
view, what is a good financial
management decision?
From
1.7
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
What is the Goal
of the Firm?
Maximization of
Shareholder Wealth!
Value creation occurs when
we maximize the share price
for current shareholders.
1.8
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Shareholder Wealth
The
market price per share of the
firm’s common stock.
Example:
4.45
1.9
Sinopec A (SSE)
RMB per share
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Organization of the Financial
Management Function
VP of Finance
Vice President (Treasurer)
• Capital Investment
• Cash Management
• Commercial/investment
banking relationships
• Credit Management
• Dividend Disbursement
• Financial Analysis/Planning
• Investor Relations
• Mergers and Acquisitions
• Pension Management
• Insurance/Risk Management
• Tax Analysis/Planning
1.10
Controller
• Cost Accounting
• Cost Management
• Data Processing
• General Ledger
• Government Reporting
• Internal Control
• Preparing Financial Statements
• Preparing Budgets
• Preparing Forecasts
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Corporate
Social Responsibility:
Acknowledging
a firm’s
responsibilities to its stakeholders
and the natural environment.
1.11
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Sustainability:
Meeting
the needs of the present
without compromising the ability
of future generations to meet
their own needs.
1.12
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 2
The Business,
Tax, and Financial
Environments
Environment
1.13
环境 : Condition or surrounding
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
The Business
Environment
The U.S. has four basic forms of
business organization:
•
Sole Proprietorships 业主
•
Partnerships (general and limited)
普通合伙企业,有限合伙企业
•
Corporations 公司
•
Limited liability companies
有限责任公司
1.14
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
The Business
Environment
Sole Proprietorship – A type of business
which has one owner. This single
owner has unlimited liability for all
debts of the firm.
1.15
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary for
Sole Proprietorship
Advantages
1.16
•
Simple
•
Low setup cost
•
Quick setup
•
Single tax filing on
individual form
Disadvantages
•
Unlimited liability
责任
•
Hard to raise more
capital 资金
•
Difficult to transfer
ownership
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
The Business
Environment
Partnership – A type of business
in which two or more people act
as owners.
1.17
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary for Partnership
Advantages
Disadvantages
•
Can be simple
•
•
Low setup cost, but
higher than sole
proprietorship
Unlimited liability for
the general partner
•
Difficult to raise
additional capital, but
easier than sole
proprietorship
•
Difficult to transfer
ownership
•
Relatively quick setup
•
Limited liability for
limited partners
1.18
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
The Business
Environment
Corporation – A business form
legally separate from its owners.
1.19
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Agency Problems
Modern Corporation
Shareholders
Management
There exists a SEPARATION
between owners and managers.
1.20
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary for Corporation
Advantages
•
•
•
•
1.21
Disadvantages
Limited liability
Easy transfer of
ownership
•
Double taxation
•
More difficult to set
up
•
More expensive to
set up and maintain
Unlimited life
Easier to raise large
quantities of capital
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Financial Markets
•
•
1.22
Financial Markets 金融市场 bring people
and entities 业务实体 together to trade
financial securities 证券, commodities
商品, and other items of value.
The purpose of financial markets is to
make buying and selling financial
products easier and cheaper.
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Market Words
 Money
Market: short-term government and
corporate debt (<1 year)
 Capital
Market: long-term stocks and
bonds (>1 year)
 Primary
Market: raises new money for
capital investment
 Secondary
Market: existing investments—
does not raise money for capital
investment
1.23
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 3
Time Value of
Money
© Pearson Education Limited 2004
Fundamentals of Financial Management, 12/e
Created by: Gregory A. Kuhlemeyer, Ph.D.
Carroll College, Waukesha, WI
1.24
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Steps to Solve Time Value
of Money Problems
1. Read problem thoroughly
2. Create a time line
3. Put cash flows and arrows on time line
4. Determine if it is a PV or FV problem
5. Determine if solution involves a single
cash flow, annuity stream(s), or mixed flow
6. Solve the problem
7. Check with financial calculator (optional)
1.25
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Future Value of a
Single Deposit
At the end of 3 years, how much is an initial
deposit of $100 worth, assuming a compound
annual interest rate of 10%?
General Future Value Formula:
FVn = P0 (1+i)n
or
1.26
FVn = P0 (FVIFi,n) See Table I
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Present Value of a
Single Deposit
$100 at the end of 3 years is worth how much
today, assuming a discount rate of 10%?
General Present Value Formula:
PV0 = FVn / (1+i)n
Or
PV0 = FVn (PVIFi,n) -- See Table 2
1.27
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Frequency of
Compounding
At the end of 3 years, how much is an initial deposit of
$100 worth, assuming a quarterly compound interest
rate of 10%?
FVn = PV0(1 + [i/m])mn
PV0 = FVn / (1+[i/m])mn
n:
m:
1.28
Number of Years
Compounding Periods per Year
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Types of Annuities
Annuity 年金 represents a series of
equal payments (or receipts) occurring
over a specified number of equally
spaced periods.
 An
 Ordinary
Annuity: Payments or receipts
occur at the end of each period.
 Annuity
Due: Payments or receipts
occur at the beginning of each period.
1.29
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Parts of an Annuity
(Ordinary Annuity)
End of
Period 1
0
Today
1.30
End of
Period 2
End of
Period 3
1
2
3
$100
$100
$100
Equal Cash Flows
Each 1 Period Apart
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Parts of an Annuity
(Annuity Due)
Beginning of
Period 1
0
1
2
$100
$100
$100
Today
1.31
Beginning of
Period 2
Beginning of
Period 3
3
Equal Cash Flows
Each 1 Period Apart
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Future Value of Ordinary Annuity
Cash flows occur at the end of the period
You plan to deposit $1,000 at the end of each year for 3
years in an account that pays 7 percent compounded
annually. What will be the final value at the end of the 3
year period?
FVAn = R ([(1 + i)n − 1] / i)
OR
FVAn = R (FVIFAi%,n) -- See Table 3
1.32
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Future Value of Annuity Due
Cash flows occur at the beginning of the period
You plan to deposit $1,000 at the beginning of each
year for 3 years in an account that pays 7 percent
compounded annually. The first $1,000 deposit would
take place now. What will be the final value at the end
of 3 years?
FVADn = R ([(1 + i)n − 1] / i)(1 + i)
OR
FVADn = R (FVIFAi%,n) (1 + i) -- See Table 3
1.33
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Present Value of Ordinary Annuity
Cash flows occur at the end of the period
What is the present value of $500 received at the end
of each of the next 3 years, assuming a discount rate
of 4%?
PVAn = R (1 - [1 / (1 + i)n] / i)
OR
PVAn = R (PVIFAi%,n) -- See Table 4
1.34
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Present Value of Annuity Due
Formulas
Cash flows occur at the beginning of the period
What is the present value of $1,000 received at the
beginning of each of the next 3 years (starting today),
assuming a discount rate of 7%?
PVADn = (1 + i) (R) (1 - [1 / (1 + i)n] / i)
OR
PVADn = (1 + i) (R) (PVIFAi%,n) -- See Table 4
1.35
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Story problem #1
You need to have $50,000 at the end of 10
years. To accumulate this much, you will
deposit a certain amount at the end of
each of the next 10 years into a savings
account. The bank will pay 8% interest
compounded annually. How much will
you have to save each year?
1.36
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Story problem #2
Early Saver has decided to invest $2,000 at the
end of each year for the next 10 years. Then
she will not make any more deposits. She will
just let the amount compound for 35
additional years.
Late Saver, has a different investment program:
He will invest nothing for the next 10 years.
Then, for the following 35 years, he will invest
$2,000 per year (at the end of each year). If we
assume an 7 percent rate of return,
compounded annually, how much will Early
Saver and Late Saver each have 45 years
from now?
1.37
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 1-3 Quiz
Next Class
 Bring
a pen/pencil, a calculator, and
paper.
 You
will write your answers on the
paper and turn it in after you take the
quiz.
 Do
not bring your textbook. You will
be given copies of the tables and
formulas.
1.38
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.