Introduction to Corporate Finance
1) Corporate finance is all about maximizing value
2) Opportunity cost of capital sets standard for investment decisions
3) A safe dollar is worth more than a risky dollar
4) Smart investment decisions create more value than smart
financing decisions
5) Good governance matters
1. Welke investeringen moeten ze maken? (spending money)
2. Hoeveel te betalen voor die investeringen? (raising money)
Corporate Investment and Financing Decisions
Investeringsbeslissing (Corporate Investment): purchase of real assets
Rendabel? Capital budgeting decision: invest in tangible or intangible assets? = Investment decision
= capital expenditures (CAPEX)
o Reële activa (Real assets): assets used to produce goods and services
MVA (tastbaar-tangible)
Plant
Machinery
IVA (ontastbaar-intangible)
R&D
Software
Bv.
• Intel decides to spend $1 billion to develop a new microprocessor
• Royal Dutch Shell constructs a pipeline to bring natural gas onshore from a production platform in
Australia
• Avon spends €200 million to launch a new range of cosmetics in European markets.
financieringsbeslissing (Financing Decisions): sale of financial assets
o Financiële activa (Financial assets/securities): financial claims to the income generated by
the firm’s real assets
- Autofinanciering: gebaseerd op cashgeneratie (meer cash binnenkomt dan buiten)
- Kapitaalmarkten:
o Kapitaalstructuur (evenwichtig) Capital structure: Choice between debt and equity
financing
Eigen vermogen: variabele dividenden
Kapitaalverhoging: maximalisatie vd winst
aandelen uitgeven
Vreemd vermogen: verplichte vaste aflossingen + interesten
Banklening
Obligatielening
Bv.
Volkswagen borrows 350 million euros (€350 million) from Deutsche Bank.
Pfizer issues new shares to buy a small biotech company.
Secret of succes in financial management = to increase value
,Role of the financial manager (CFO = Chief Financial
Officer)
=> supervises all financial functions and sets overall financial strategy
Treasurer = responsible for financing, cash management and relationships with bank and other financial
institutions
Controller = responsible for budgeting, accounting and taxes
1) onderneming doet beroep op kapitaalmarkt: uitgifte van aandelen of van schuldinstrumenten
(cash raised from investors)
2) kapitaal wordt geïnvesteerd
(cash invested in firm capital investments)
3) cashgeneratie +
(cash generated by operations)
4a) autofinanciering
(cash reinvested)
4b) vergoeding voor de kapitaalverschaffers:
dividend voor aandeelhouders, interesten voor schuldeisers, aflossing van de leningen
(cash returned to investors)
The financial Goal of the Corporation
1. Stockholders want 3 things:
- To maximize current wealth, to be rich as possible
- To transform wealth into most desirable time pattern of consumption by borrowing to spend
now or investing to spend later
- To manage risk characteristics of chosen consumption plan
2. Stockholders don’t need the FM help to achieve the best time pattern of consumption
3. FM can help firm’s stockholders by increasing their wealth = market value of the firm and current
price of its shares
Profit maximization:
- Not a well-defined financial objective
Which year’s profits?
Shareholders wil not welcome higher short-term profits if long-term profits are damaged
Company may increase future profits by cutting year’s dividend, investing freed-up cash in firm
Not in shareholders’ best interest if company earns less than opportunity cost of capital
The investment trade-off:
- Vereist rendement = Hundle rate =
Cost of capital = kapitaalkost
Minimum acceptable rate of return on
investment
- Verwacht rendement = IR = internal rate =
opportunity cost of capital = kapitaalkost
Investing in a project eliminates other
opportunities to use invested cash
,
1) Corporate finance is all about maximizing value
2) Opportunity cost of capital sets standard for investment decisions
3) A safe dollar is worth more than a risky dollar
4) Smart investment decisions create more value than smart
financing decisions
5) Good governance matters
1. Welke investeringen moeten ze maken? (spending money)
2. Hoeveel te betalen voor die investeringen? (raising money)
Corporate Investment and Financing Decisions
Investeringsbeslissing (Corporate Investment): purchase of real assets
Rendabel? Capital budgeting decision: invest in tangible or intangible assets? = Investment decision
= capital expenditures (CAPEX)
o Reële activa (Real assets): assets used to produce goods and services
MVA (tastbaar-tangible)
Plant
Machinery
IVA (ontastbaar-intangible)
R&D
Software
Bv.
• Intel decides to spend $1 billion to develop a new microprocessor
• Royal Dutch Shell constructs a pipeline to bring natural gas onshore from a production platform in
Australia
• Avon spends €200 million to launch a new range of cosmetics in European markets.
financieringsbeslissing (Financing Decisions): sale of financial assets
o Financiële activa (Financial assets/securities): financial claims to the income generated by
the firm’s real assets
- Autofinanciering: gebaseerd op cashgeneratie (meer cash binnenkomt dan buiten)
- Kapitaalmarkten:
o Kapitaalstructuur (evenwichtig) Capital structure: Choice between debt and equity
financing
Eigen vermogen: variabele dividenden
Kapitaalverhoging: maximalisatie vd winst
aandelen uitgeven
Vreemd vermogen: verplichte vaste aflossingen + interesten
Banklening
Obligatielening
Bv.
Volkswagen borrows 350 million euros (€350 million) from Deutsche Bank.
Pfizer issues new shares to buy a small biotech company.
Secret of succes in financial management = to increase value
,Role of the financial manager (CFO = Chief Financial
Officer)
=> supervises all financial functions and sets overall financial strategy
Treasurer = responsible for financing, cash management and relationships with bank and other financial
institutions
Controller = responsible for budgeting, accounting and taxes
1) onderneming doet beroep op kapitaalmarkt: uitgifte van aandelen of van schuldinstrumenten
(cash raised from investors)
2) kapitaal wordt geïnvesteerd
(cash invested in firm capital investments)
3) cashgeneratie +
(cash generated by operations)
4a) autofinanciering
(cash reinvested)
4b) vergoeding voor de kapitaalverschaffers:
dividend voor aandeelhouders, interesten voor schuldeisers, aflossing van de leningen
(cash returned to investors)
The financial Goal of the Corporation
1. Stockholders want 3 things:
- To maximize current wealth, to be rich as possible
- To transform wealth into most desirable time pattern of consumption by borrowing to spend
now or investing to spend later
- To manage risk characteristics of chosen consumption plan
2. Stockholders don’t need the FM help to achieve the best time pattern of consumption
3. FM can help firm’s stockholders by increasing their wealth = market value of the firm and current
price of its shares
Profit maximization:
- Not a well-defined financial objective
Which year’s profits?
Shareholders wil not welcome higher short-term profits if long-term profits are damaged
Company may increase future profits by cutting year’s dividend, investing freed-up cash in firm
Not in shareholders’ best interest if company earns less than opportunity cost of capital
The investment trade-off:
- Vereist rendement = Hundle rate =
Cost of capital = kapitaalkost
Minimum acceptable rate of return on
investment
- Verwacht rendement = IR = internal rate =
opportunity cost of capital = kapitaalkost
Investing in a project eliminates other
opportunities to use invested cash
,
