财务管理英文课件

,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Copyright 2003,Pearson Education Australia Pty Limited,Slide: 1,-,370,chapter 1 & 3,Scope and environment of,financial management,chapter 1 & 3,Development of Financial Management,Early 20,th,century:,Concentrated on reporting to outsiders.,Early 21,st,century:,Insiders managing and controlling the firms financial operations.,Development of Financial Manag,At the turn of the twentieth century financial topics focused on the formation of new companies and their legal regulation and the process of raising funds in the capital markets.,The companys secretary was in charge of raising funds and producing the annual reports, as well as the accounting function.,At the turn of the twentieth c,Business failures during the Great Depression of the 1930s helped change the focus of finance.,Increased emphasis was placed on bankruptcy, liquidity management and avoidance of financial problems.,Business failures during the G,After World War the emphasis of corporate finance switched from financial accounting and external reporting to cost accounting and reporting and financial analysis on behalf of the firms managers.,That is, the perspective of finance changed from reporting only to outsiders to that of an insider charged with the management and control of the firms financial operations.,After World War the emphasis,Capital budgeting became a major topic in finance.,This led to an increased interest in related topics, most notably firm valuation.,Interest in these topics grew and in turn spurred interest in security analysis, portfolio theory and capital structure theory.,Capital budgeting became a maj,Chief Accountant,Corporate Treasurer,Typical Finance Structure,Chief Financial Officer,Chief AccountantCorporate Trea,Chief accountant is also called financial controller, whose responsibilities include financial reporting to outsiders as well as cost and managerial accounting and financial analysis on behalf of the firms managers.,Corporate treasurer is in charge of raising funds, managing liquidity and banking relationships and controlling risks.,Chief accountant is also calle,Financial Goal of the Firm,Profit maximisation?,In microeconomics courses profit maximisation is frequently given as the financial goal of the firm.,Profit maximisation functions largely as a theoretical goal.,Financial Goal of the FirmProf,Problems:,UNCERTAINTY of returns,TIMING of returns,Problems:,Shareholder wealth,maximisation?,Same as:,Maximising firm value,Maximising share values,Shareholder wealth Same as:,It takes into account uncertainty or risk, time, and other factors that are important to the owners.,But many things affect share prices.,Difficulty:,The agency problem,It takes into account uncertai,Agency problem,The agency problem refers to the fact that a firms managers will not work to maximise benefits to the firms owners unless it is in the managers interest to do so.,This problem is the result of a separation of the management and ownership of the firm.,Agency problemThe agency probl,Agency Costs,The costs, such as reduced share price, associated with potential conflict between managers and investors when these two groups are not the same.,Agency CostsThe costs, such as,In order to lessen the agency problem, some companies have adopted practices such as issuing stock options (share options) to their executives.,In order to lessen the agency,Financial Decisions and Risk-return Relationships,Almost all financial decisions involve some sort of risk-return trade-off.,The more risk the firm is willing to assume, the higher the expected return from a given course of action.,Financial Decisions and Risk-r,Risk and Returns,Risk,Expected Returns,Risk and ReturnsRiskExpected R,Why Prices Reflect Value,Efficient Markets,Markets in which the values of all assets and securities at any instant in time fully reflect all available information.,Assumption,Why Prices Reflect ValueEffici,Organisational Forms,Sole proprietorships,Partnerships,Companies,Organisational FormsSole propr,Nature of the organisational forms,Sole proprietorship,Owned by a single individual,Absence of any formal legal business structure,The owner maintains title to the assets and is personally responsible, generally without limitation, for the liabilities incurred.,The proprietor is entitled to the profits from the business but also absorb any losses.,Nature of the organisational f,Partnership,The primary difference between a partnership and a sole proprietorship is that the partnership has more than one owner.,Each partner is jointly and severally responsible for the liabilities incurred by the partnership.,Partnership,Company,A company may operate a business in its own right. That is, this entity functions separately and apart from its owners.,The owners elect a board of directors, whose members in turn select individuals to serve as corporate officers, including the manager and the company secretary.,The shareholders liability is generally limited to the amount of his or her investment in the company.,Company,Limited company (Ltd) and proprietary limited company (Pty Ltd),Ltd companies are generally public companies whose shares may be listed on a stock exchange, ownership in such shares being transferable by public sale through the exchange.,Pty Ltd companies are basically private entities, as the shares can only be transferred privately.,Limited company (Ltd) and prop,Comparison of Organisational forms,Organisation requirements and costs,Liability of owners,Continuity of business,Transferability of ownership,Management control,Ease of capital raising,Income taxes,Comparison of Organisational f,The flow of funds,Savings deficit units,Savings surplus units,Financial markets facilitate transfers of funds from surplus to deficit units,Direct flows of finds,Indirect flows of funds,The flow of fundsSavings defic,Direct transfer of funds,Cash,Securities,saver,s,firm,s,Direct transfer of fundsCashSe,Types of securities,Treasury Bills and Treasury Bonds,Corporate Bonds,Preferred Shares,Ordinary Shares,Risk?,High Returns?,Relationship?,Types of securitiesTreasury Bi,Broking &investment banking,How do brokers,/ investment bankers help firms issue securities?,Advising the firm,Underwriting the issue,Distributing the issue,Enhancing Credibility,Broking &investment bankingHo,Indirect transfer of funds,Intermediary,Securities,Firm,Securities,financial,intermediary,firm,s,saver,s,Funds,Funds,Indirect transfer of fundsInte,Components of financial markets,Primary and secondary markets,Capital and money markets,Foreign-exchange markets,Derivatives markets,Stock exchange markets,Components of financial market,Primary andsecondary markets,Primary markets,Selling of new securities,Funds raised by governments and businesses,Secondary markets,Reselling of existing securities,Adds marketability and liquidity to primary markets,Reduces risk on primary issues,Funds raised by existing security holders,Primary andsecondary marketsP,Capital & money markets,Capital markets,Markets in long-term financial instruments,By convention: terms greater than one year,Long-term debt and equity markets,Bonds, shares, leases, convertibles,Money markets,Markets in short-term financial instruments,By convention: terms less than one year,Treasury notes, certificates of deposit, commercial bills, promissory notes,Capital & money marketsCapital,Reviews,Introduce the history of financial management,Understand the financial goal of decision-making,Understand the limitations of a goal of profit maximisation,Introduce risk-return trade-off of decisions,Introduce market efficiency,Distinguish between the forms of business organisations,Understand the financial market,Reviews Introduce the history,End of Chapter 1,End of Chapter 1,Chapter 4: Mathematics of Finance,Chapter 4: Mathematics of Fina,The Time Value of Money,Compounding and Discounting:,Single sums,Today,Future,The Time Value of MoneyCompoun,We know that receiving $1 today is worth more than $1 in the future. This is due to,OPPORTUNITY COSTS,.,The opportunity cost of receiving $1 in the future is the,interest,we could have earned if we had received the $1 sooner,.,Today,Future,We know that receiving $1 toda,we can MEASURE this opportunity cost by:,Translate $1 today into its equivalent in the future (COMPOUNDING).,Translate $1 in the future into its equivalent today (DISCOUNTING).,?,?,Today,Future,Today,Future,we can MEASURE this opportunit,Note:,Its easiest to use your financial functions on your calculator to solve time value problems. However, you will need a lot of practice to eliminate mistakes.,Note:Its easiest to use your,Future Value,Future Value,Future Value - single sums,If you deposit $100 in an account earning 6%, how much would you have in the account after 1 year?,Mathematical Solution:,FV,1,= PV (1 + i),1,= 100 (1.06),1,= $106,0 1,PV = -100 FV = ?,Future Value - single sumsIf,Future Value - single sums,If you deposit $100 in an account earning 6%, how much would you have in the account after 2 year?,Mathematical Solution:,FV,2,= FV,1,(1+i),1,=PV (1 + i),2,= 100 (1.06),2,= $112.4,0 2,PV = -100 FV = ?,Future Value - single sumsIf,Future Value - single sums,If you deposit $100 in an account earning 6%, how much would you have in the account after 3 year?,Mathematical Solution:,FV,3,= FV,2,(1+i),1,=PV (1 + i),3,= 100 (1.06),3,= $119.1,0 3,PV = -100 FV = ?,Future Value - single sumsIf,Future Value - single sums,If you deposit $100 in an account earning 6%, how much would you have in the account after 4 year?,Mathematical Solution:,FV,4,= FV,3,(1+i),1,=PV (1 + i),4,= 100 (1.06),4,= $126.2,0 4,PV = -100 FV = ?,Future Value - single sumsIf,Future Value - single sums,If you deposit $100 in an account earning 6%, how much would you have in the account after 5 years?,Mathematical Solution:,FV,5,= FV,4,(1+i),1,=PV (1 + i),5,=100 (1.06),5,= $,133.82,0 5,PV = -100 FV = ?,Future Value - single sumsIf,Future Value - single sums,If you deposit $100 in an account earning i, how much would you have in the account after n years?,Mathematical Solution:,FV,n,=PV (1 + i),n,= PV (FVIF,i, n,),0 n,PV = -100 FV = ?,Future Value - single sumsIf,Example 4.1,Example 4.2,Example 4.3,Example 4.4,Example 4.1,Until now it has assumed that the compounding period is always annual.,But interest can be compounded on a quarterly, monthly or daily basis, and even continuously.,Example 4.5,Until now it has assumed that,Future Value - single sums,If you deposit $100 in an account earning 6% with,quarterly compounding, how much would you have in the account after 5 years?,Mathematical Solution:,FV = PV (FVIF,i, n,),FV = 100 (FVIF,.015, 20,),(cant use FVIF table),FV = PV (1 + I/m),m x N,FV = 100 (1.015),20,= $134.68,0 20,PV = -100 FV = ?,Future Value - single sumsIf,Present Value,Present Value,In compounding we talked about the compound interest rate and initial investment;,In determining the present value we will talk about the discount rate and present value.,The discount rate is simply the interest rate that converts a future value to the present value.,In compounding we talked about,Example 4.7,Example 4.8,Example 4.7,Present Value - single sums,If you will receive $100 5 years from now, what is the PV of that $100 if your opportunity cost is 6%?,Mathematical Solution:,PV = FV / (1 + i),n,= 100 / (1.06),5,= $74.73,PV = FV (PVIF,i, n,),= 100 (PVIF,.06, 5,) (use PVIF table),= $74.73,0 5,PV = ? FV = 100,Present Value - single sumsIf,0 5,PV = 5,000 FV = 11,933,Present Value - single sums,If you sold land for $11,933 that you bought 5 years ago for $5,000, what is your annual rate of return?,0,Mathematical Solution:,PV = FV (PVIF,i, n,),5,000 = 11,933 (PVIF,?, 5,),PV = FV / (1 + i),n,5,000 = 11,933 / (1+ i),5,.419 = (1/ (1+i),5,),2.3866 = (1+i),5,(2.3866),1/5,= (1+i),i = 0 .19,Mathematical Solution:,Example 4.9,Example 4.9,The Time Value of Money,Compounding and Discounting,Cash Flow Streams,0,1,2,3,4,The Time Value of MoneyCompoun,Annuities,Annuity: a sequence of equal cash flows, occurring at the end of each period.,0,1,2,3,4,AnnuitiesAnnuity: a sequence,Examples of Annuities:,If you buy a bond, you will receive equal coupon interest payments over the life of the bond.,If you borrow money to buy a house or a car, you will pay a stream of equal payments.,Examples of Annuities:If you b,Future Value - annuity,If you invest $1,000 at the end of the next 3 years, at 8%, how much would you have after 3 years?,0 1 2 3,10001000 1000,Future Value - annuityIf you,Mathematical Solution:,FV = PMT (FVIFA,i, n,),FV = 1,000 (FVIFA,.08, 3,),(use FVIFA table, or),FV = PMT (1 + i),n,- 1,i,FV = 1,000 (1.08),3,- 1 = $3246.40,0.08,Mathematical Solution:,Example 4.11,Example 4.11,Present Value - annuity,What is the PV of $1,000 at the end of each of the next 3 years, if the opportunity cost is 8%?,0 1 2 3,10001000 1000,Present Value - annuityWhat i,Mathematical Solution:,PV = PMT (PVIFA,i, n,),PV = 1,000 (PVIFA,.08, 3,) (use PVIFA table, or),1,PV = PMT 1 - (1 + i),n,i,1,PV = 1000 1 - (1.08 ),3,= $2,577.10,.08,Mathematical Solution:,Example 4.12,Example 4.12,Interpolation within financial tables: finding missing table values,Example 1:,PV=1000(PVIFA,2.5%,6,),Example 2:,1000=100(PVIFA,?%,12 months,),Interpolation within financial,Perpetuities,Suppose you will receive a fixed payment every period (month, year, etc.) forever. This is an example of a perpetuity.,You can think of a perpetuity as an annuity that goes on forever.,PerpetuitiesSuppose you will r,Present Value of a Perpetuity,When we find the PV of an annuity, we think of the following relationship:,PV = PMT (PVIFA,i, n,),Present Value of a PerpetuityW,Mathematically,(PVIFA i, n ) =,We said that a perpetuity is an annuity where n = infinity. What happens to this formula when n gets very, very large?,Mathematically,1,-,1,(1 + i),n,i,When n gets very large,1,were left with PVIFA =,i,1 - 1(1 + i)niWhen n gets ver,PMT,i,PV =,So, the PV of a perpetuity is very simple to find:,PV = PMT/i,Present Value of a Perpetuity,PMT iPV =So, the PV of a perp,What should you be willing to pay in order to receive $10,000 annually forever, if you require 8% per year on the investment?,PMT,i,PV =,=,$10,000,0.08,=,$125,000,What should you be willing to,Example 4.13,Example 4.13,Other Cash Flow Patterns,0,1,2,3,Other Cash Flow Patterns0123,$1000 $1000 $1000,4 5 6 7 8,Ordinary Annuity versus Due Annuity,$1000 $1000 $10004,Earlier, we examined this “ordinary” annuity,:,Using an interest rate of 8%, we find that:,The Future Value (at 3) is $3,246.40.,The Present Value (at 0) is $2,577.10.,0 1 2 3,10001000 1000,Earlier, we examined this “ord,What about this annuity?,Same 3-year time line,Same 3 $1000 cash flows, but,The cash flows occur at the,beginning,of each year, rather than at the,end,of each year.,This is an,“annuity due.”,0 1 2 3,1000 1000 1000,What about this annuity?Same 3,0 1 2 3,-1000 -1000 -1000,Future Value - annuity due,If you invest $1,000 at the beginning of each of the next 3 years at 8%, how much would you have at the end of year 3?,0 1 2 3,Mathematical Solution:,Simply compound the FV of the ordinary annuity one more period:,FV = PMT (FVIFA,i, n,) (1 + i),FV = 1,000 (FVIFA,.08, 3,) (1.08),(use FVIFA table, or),FV = PMT (1 + i),n, 1 (1+i),i,FV = 1,000 (1.08),3,- 1 (1.08) = $3,506.11,0.08,Mathematical Solution:,0 1 2 3,1000 1000 1000,Present Value - annuity due,What is the PV of $1,000 at the beginning of each of the next 3 years, if your opportunity cost is 8%?,0 1 2 3,Mathematical Solution:,Simply compound the FV of the ordinary annuity one more period:,PV = PMT (PVIFA,i, n,) (1 + i),PV = 1,000 (PVIFA,.08, 3,) (1.08),(use PVIFA table, or),1,PV = PMT 1 - (1 + i),n,(1+i),i,1,PV = 1000 1 - (1.08 ),3,(1.08) = 2,783.26,0.08,Mathematical Solution: Simply,Is this an annuity?,How do we find the PV of a cash flow stream when all of the cash flows are different? (Use a 10% discount rate).,Uneven Cash Flows,0,1,2,3,4,-,10,000 2,000 4,000 6,000 7,000,Is this an annuity?Uneven Cash,Uneven Cash Flows,Sorry! Theres no quickie for this one. We have to discount each cash flow back separately.,0,1,2,3,4,-,10,000 2,000 4,000 6,000 7,000,Uneven Cash FlowsSorry! There,period,CF,PV (CF),0-10,000 -10,000.00,1 2,000 1,818.18,2 4,000 3,305.79,3 6,000 4,507.89,4 7,000,4,781.09,PV of Cash Flow Stream: $ 4,412.95,0,1,2,3,4,-,10,000 2,000 4,000 6,000 7,000,period CF PV (CF,Retirement Example,After graduation, you plan to invest $400 per month in the stock market. If you earn 12% per year on your stocks, how much will you have accumulated when you retire in 30 years?,0,1,2,3,. . . 360,400 400 400 400,Retirement ExampleAfter gradua,Mathematical Solution:,FV = PMT (FVIFA,i, n,),FV = 400 (FVIFA,.01, 360,),(cant use FVIFA table),FV = PMT (1 + i),n,- 1,i,FV = 400 (1.01),360,- 1 = $1,397,985.65,.01,Mathematical Solution:,House Payment Example,If you borrow $100,000 at 7% fixed interest for 30 years in order to buy a house, what will be your monthly house payment?,House Payment ExampleIf you bo,Mathematical Solution:,PV = PMT (PVIFA,i, n,),100,000 = PMT (PVIFA,.005833, 360,),(cant use PVIFA table),1,PV = PMT 1 - (1 + i),n,i,1,100,000 = PMT 1 - (1.005833 ),360,PMT=$665.30,0.005833,Mathematical Solution:,Calculating Present and Future Values,for single cash flows,for an uneven stream of cash flows,for annuities and perpetuities,For each problem identify:,i, n, PMT, PV and FV,Summary,Calculating Present and Future,chapter 9,Risk and rates of return,chapter 9,In financial markets, firms seek financing for their investments and shareholders of a company achieve much of their wealth through share price movements.,Involvement with financial markets is risky.,The degree of risk varies from one financial security to another.,In financial markets, firms se,Important princ