Summary corporate finance and governance

Principles of Corporate Finance Summary by Remy Gankema Chapter 1 Goals and Governance of the Firm 1.1 Corporate Investment and Financing Decisions Financial assets/securities: Claims on assets/cash flows in return for money. Investment decisions CAPEX: Capital expenditure; investments in (in)tangible assets. Finance decisions Capital structure: The choice between debt and equity. Pay-out decision: The decision to either pay dividends or repurchase shares. 1.2 The Financial Goal of the Corporation Effective managers make decisions that increase the value of shares and the stockholder’s wealth. The Investment Trade-off Investment trade-off is the trade-off between either paying the shareholders or investing in real assets. Opportunity cost of capital (OCC): Minimum rate of return an investment should give, so that shareholders will earn more money than when spending money elsewhere. Should Managers Look After the Interests of Their Shareholders? Managers should look after the interests of the company, which is often the same, but not anything goes. Agency Problems and Corporate Governance Conflicts between shareholders’ and managers’ objectives create agency problems. Its agency costs are incurred when managers do not attempt to maximise firm value and when shareholders incur costs to monitor the managers and constrain their actions. Summary Principles of Corporate Finance (11th ed.) by Remy Gankema, 2014 2 Chapter 2 How to Calculate Present Values 2.1 Future Values and Present Values Calculating Future Values Compound interest: Interest earned on initial investment plus interest. Grows at compound rate. Future value (