Chapter1.

1. Chapter1. Introduction to Corporate Finance 徐啟升

2. The financial manager has three main tasks: • Make investment decisions, • Make financing decisions, and • Manage cash flow from operating activities.

3. Maximize the Value of the Firm • All of these decisions by the financial manager are made within the context of the overriding goal(最優先之目標) of financial management— to maximize the wealth of the owners, the stockholders.

4. 代理成本 • Agency Problems & Agency costs: • Reduced effort • Perks • Empire building • Entrenching investment • Avoiding risk

5. Management has a significant incentive to act in the interest of stockholders • Monitoring • Compensations • Proxy Fight • Takeover Threat

6. Chapter2. Financial Statements, Taxes, and Cash Flow 徐啟升

7. 資產負債表 • 資產：代表投資決策。 • 負債及業主權益：代表融資決策。 • 股東權益= Shareholders’ equity = Stockholders’ equity = Owners’ equity • 保留盈餘(retained earnings)在股東權益項下。

8. U.S. Composite Corporation Balance Sheet 2006 2005 2006 2005 Current assets: Current Liabilities: Cash and equivalents $140 $107 Accounts payable $213 $197 Accounts receivable 294 270 Notes payable 50 53 Inventories 269 280 Accrued expenses 223 205 Other 58 50 Total current liabilities $486 $455 Total current assets $761 $707 Long-term liabilities: Fixed assets: Deferred taxes $117 $104 Property, plant, and equipment $1,423 $1,274 Long-term debt 471 458 Less accumulated depreciation (550) (460) Total long-term liabilities $588 $562 Net property, plant, and equipment 873 814 Intangible assets and other 245 221 Stockholder's equity: Total fixed assets $1,118 $1,035 Preferred stock $39 $39 Common stock ($1 per value) 55 32 Capital surplus 347 327 Accumulated retained earnings 390 347 Less treasury stock (26) (20) Total equity $805 $725 Total assets $1,879 $1,742 Total liabilities and stockholder's equity $1,879 $1,742

9. 資產負債表與損益表 • Net working capital (淨營運資金) • current assets –current liabilities • Net fixed assets = • Fixed assets – Acc. Depreciation • Net Income : • 股利 • 保留盈餘

10. U.S.C.C. Income Statement Total operating revenues $2,262 Cost of goods sold 1,655 Selling, general, and administrative expenses 327 Depreciation 90 Operating income $190 29 Other income Earnings before interest and taxes $219 Interest expense 49 Pretax income $170 Taxes 84 Current: $71 Deferred: $13 Net income $86 Addition to retained earnings: $43 Dividends: $43

11. Cash flow from assets • 投資所創造出的現金流量 • Cash flow from assets = • cash flow to creditors + • cash flow to stockholders • Cash flow from assets = • capital spending + • change in net working capital + • operating cash flow

12. Capital Spending資本支出 • Cash flow from change in fixed assets • Change in net fixed assets + Dep. • 資本支出> 0 ：本期所購入之固定資產大於售出之固定資產，為現金流量之減項。 • 資本支出< 0 ：本期所售出之固定資產大於購入之固定資產，為現金流量之加項。 • 在計算cash flow from assets時，要注意須從現金流量的角度來考量。

13. CF from Change in Net Working Capital • Ending NWC – Beginning NWC • Change in NWC > 0 ： • 淨營運資金的增加，是現金流量的減項。 • 例如：應收帳款增加。 • Change in NWC < 0 ： • 淨營運資金的減少，是現金流量的加項。 • 例如：應付帳款增加。

14. $252m = $707- $455 $23 million $275m = $761m- $486m U.S.C.C. Balance Sheet 2006 2005 2006 2005 Current assets: Current Liabilities: Cash and equivalents $140 $107 Accounts payable $213 $197 Accounts receivable 294 270 Notes payable 50 53 Inventories 269 280 Accrued expenses 223 205 Other 58 50 Total current liabilities $486 $455 Total current assets $761 $707 Here we see NWC grow to $275 million in 2006 from $252 million in 2005. Long-term liabilities: Fixed assets: Deferred taxes $117 $104 Property, plant, and equipment $1,423 $1,274 Long-term debt 471 458 Less accumulated depreciation (550) (460 Total long-term liabilities $588 $562 Net property, plant, and equipment 873 814 Intangible assets and other 245 221 Stockholder's equity: Total fixed assets $1,118 $1,035 Preferred stock $39 $39 Common stock ($1 par value) 55 32 This increase of $23 million is a cash outflow of the firm. Capital surplus 347 327 Accumulated retained earnings 390 347 Less treasury stock (26) (20) Total equity $805 $725 Total assets $1,879 $1,742 Total liabilities and stockholder's equity $1,879 $1,742

15. Operating Cash Flow營運現金流量 • 由營運現金流量此一名詞可知，係要計算營運所產生的現金流量，故可推論應與損益表有關。 • OCF = EBIT + Dep. - Tax • Tax：為實際支付給政府，故需扣除。 • Interest：不考慮利息費用，因它是屬於融資成本。 • Dep.：只是會計上的減項，實際並無此項支出。

16. Cash Flow to Creditors and Stockholders • Cash flow to creditors = interest paid - net new borrowing • net new borrowing = issue new bonds - buy back old bonds • Cash flow to stockholder = dividends paid -net new equity raised • net new equity raised = issue new stocks - repurchase stocks

17. U.S.C.C. Financial Cash Flow Operating Cash Flow: EBIT $219 Depreciation $90 Current Taxes -$71 OCF $238 Cash Flow of the Firm Operating cash flow $238 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) $42 Total

18. U.S.C.C. Financial Cash Flow Cash Flow of the Firm Operating cash flow $238 Capital Spending Purchase of fixed assets $198 Sales of fixed assets -$25 Capital Spending $173 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42

19. U.S.C.C. Financial Cash Flow Cash Flow of the Firm Operating cash flow $238 NWC grew from $275 million in 2006 from $252 million in 2005. This increase of $23 million is the addition to NWC. (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42

20. U.S.C.C. Financial Cash Flow Cash Flow of the Firm Operating cash flow $238 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42

21. U.S.C.C. Financial Cash Flow Cash Flow of the Firm Operating cash flow $238 Cash Flow to Creditors Interest $49 Retirement of debt 73 Debt service 122 Proceeds from new debt sales -86 Total $36 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42

22. U.S.C.C. Financial Cash Flow Cash Flow of the Firm Operating cash flow $238 Cash Flow to Stockholders Dividends $43 Repurchase of stock 6 Cash to Stockholders 49 Proceeds from new stock issue -43 Total $6 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42

23. U.S.C.C. Financial Cash Flow Cash Flow of the Firm The cash flow received from the firm’s assets must equal the cash flows to the firm’s creditors and stockholders: Operating cash flow $238 (Earnings before interest and taxes plus depreciation minus taxes) Capital spending -173 (Acquisitions of fixed assets minus sales of fixed assets) Additions to net working capital -23 Total $42 Cash Flow of Investors in the Firm Debt $36 (Interest plus retirement of debt minus long-term debt financing) Equity 6 (Dividends plus repurchase of equity minus new equity financing) Total $42