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Lecture 1
Lecturer:
Dr Thomai Filippeli
E mail: (t.filippeli@qmul.ac.uk)
Room: W415
Office Hours: Friday 3pm 5pm
Lectures:
Tutorials:
Assessment:
Textbook
Jonathan Berk and Peter DeMarzo, Corporate
Finance, global edition (3rd edition), Pearson, 2013
Lecture notes
The lecture notes will be available on QMplus the
day before the lecture
Classes
On QMplus you will find the exercises for next
week
You are expected to solve the exercises BEFORE
each
class
Model answers to the exercises will be available
on QMplus after the class
Principal-agent problems
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1.
2.
3.
4.
Sole Proprietorship
Partnership
Limited Liability Company
Corporation
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flows (CF)
A firm is owned by investors with different
ownership rights or they own different pieces
of the firm.
Two major types of ownership: debt and
equity
How to become owner? Buy debt or equity
(lend money to the firm)
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D=min(5M, 100k*P)
E=max(0,100K*P-5M)
What is the value of the debt and equity today?
If price is $40? $90? $140?
D=min(5M, 4M or 9M or 14M)=4M or 5M or 5M
E=max(0,4-5 or 9-5 or 14-5)=0 or 4M or 9M
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delegates
day-to-day
decision
making
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Financial Manager
Responsible for:
Investment Decisions
Financing Decisions
Cash Management
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Agency Relationships
An agency relationship arises whenever
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CEO Performance
If a CEO is performing poorly, shareholders can
express their dissatisfaction by selling their shares.
This selling pressure will drive the stock price down.
Hostile Takeover
Low stock prices may entice a Corporate Raider to
buy enough stock so they have enough control to
replace current management. The stock price will
rise after the new management team fixes the
company.
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The
stock
to shareholders.
market
provides
liquidity
Liquidity
The ability to easily sell an asset for close to the
price you can currently buy it for
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Public Company
Stock is traded by the public on a stock exchange.
Private Company
Stock may be traded privately
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Primary Markets
When a corporation itself issues new shares of stock
and sells them to investors, they do so on the primary
market.
Secondary Markets
After the initial transaction in the primary market, the
shares continue to trade in a secondary market
between investors.
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Source: www.world-exchanges.org
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