Fundamental of corpoarte finance 4th mathew will chapter 2

Fundamentals of Corporate Finance Chapter Why Corporations Need Financial Markets and Institutions Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Topics Covered  Why Finance Matters  The Flow of Savings to Corporations  Functions of Financial Markets  Functions of Financial Intermediaries  Value Maximization and Cost of Capital McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets Money Primary OTC Markets Markets Secondary Markets McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets  Financing Decision  Source of Funds “Capital”  Capital Structure  Money Markets  Euros McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets (2) (1) Investors Firm's operations Financial Manager (4a) Real assets (timberland) (4b) (3) (stockholders save and invest in closely held firm.) (1) Investors buy shares with cash (2)Cash is invested (3) Timber harvest generates cash (4a) Cash reinvested (4b) Cash returned to investors McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets Issue Debt Company McGraw-Hill/Irwin Irwin/McGraw-Hill Cash Investors Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets $ Bank of America McGraw-Hill/Irwin Irwin/McGraw-Hill Sells shares $ Windsor Fund Investors Issues shares Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets Company Banks Insurance Cos Obligations Funds Intermediary Brokerage Firms Obligations Funds Depositors Policyholders Investor Investors McGraw-Hill/Irwin Irwin/McGraw-Hill Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- Financial Markets Company Loan Banks $2.5 mil Intermediary Deposits Depositors McGraw-Hill/Irwin Irwin/McGraw-Hill Cash Investor Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 10 Financial Markets Company Loan Insurance Company $250 mil Intermediary Sell policies Issue Stock Policyholders McGraw-Hill/Irwin Irwin/McGraw-Hill Cash Investor Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 11 Total U.S Financing % Holdings of Corporate and Foreign Bonds (Qtr 1, 2005) McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 12 Total U.S Financing % Holdings of Corporate Equities (Qtr 1, 2005) McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 13 Function of Financial Markets  Transporting cash across time  Risk transfer and diversification  Liquidity  Payment mechanism  Provide information McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 14 U.S Financing Information Provided by Financial Markets  Commodity prices  Interest rates  Company values McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 15 Value of Alaska Air Group Data as of April, 2005 McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights 2- 16 Value Maximization McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc All rights ... All rights 2- 12 Total U.S Financing % Holdings of Corporate Equities (Qtr 1, 20 05) McGraw-Hill/Irwin Copyright © 20 07 by The McGraw-Hill Companies, Inc All rights 2- 13 Function of Financial... Copyright © 20 07 by The McGraw-Hill Companies, Inc All rights 2- 15 Value of Alaska Air Group Data as of April, 20 05 McGraw-Hill/Irwin Copyright © 20 07 by The McGraw-Hill Companies, Inc All rights 2- .. .2- Topics Covered  Why Finance Matters  The Flow of Savings to Corporations  Functions of Financial Markets  Functions of Financial Intermediaries  Value Maximization and Cost of Capital