Introduction to Business Finance
FINS1613
Business Finance
Semester 2 – 2009 Version 1.0.3
Contents
Page 3 Page 7 Page 10 Page 14 Page 18 Page 23 Page 26 Page 29 Page 32 Page 38 Page 42 Basic Concepts Introduction to Financial Mathematics The Valuation of a Firm’s Securities Capital Budgeting Capital Budgeting Applications – Part 1 Capital Budgeting Applications – Part 2 Risk and Return The Capital Asset Pricing Model Cost of Capital and Raising Capital Capital Structure Dividend Policy
Copyright © Ka Hei Yeh 2009 First Edition published October 2009. (Revised February 2010)
This work is licensed under the Creative Commons Attribution Attribution-Non-CommercialNo Derivative Works 2.5 Australia Licence. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/2.5/au/ or send a letter to Creative http://creativecommons.org/licenses/by nd/2.5/au/ Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Disclaimer: The author does not guarantee the accuracy of the notes available and will not be held liable for any damages (including lost marks etc.) as a result of the use of these notes. Use at your own discretion with etc.) caution. Do not rely on them; these notes are not intended to serve as a replacement for your own own.
Business Finance– Semester 2 2009
2
Basic Concepts
Basic Concepts
Background Before we delve into the harder components of business finance, it is imperative that we learn the basics first. Types of Business Forms If you have previously studied Business Studies for the HSC, you can skip this section. Businesses are usually formed based on a set structure. The most common of these are: • Sole Proprietorships This is where the business is owned by a single person. It is very simple, fast to establish and generally has very minimal government regulations. The owner gets to keep all the profits himself so there is incentive to work harder. The downside is that it has unlimited liability (where if the business
Business Finance
Semester 2 – 2009 Version 1.0.3
Contents
Page 3 Page 7 Page 10 Page 14 Page 18 Page 23 Page 26 Page 29 Page 32 Page 38 Page 42 Basic Concepts Introduction to Financial Mathematics The Valuation of a Firm’s Securities Capital Budgeting Capital Budgeting Applications – Part 1 Capital Budgeting Applications – Part 2 Risk and Return The Capital Asset Pricing Model Cost of Capital and Raising Capital Capital Structure Dividend Policy
Copyright © Ka Hei Yeh 2009 First Edition published October 2009. (Revised February 2010)
This work is licensed under the Creative Commons Attribution Attribution-Non-CommercialNo Derivative Works 2.5 Australia Licence. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/2.5/au/ or send a letter to Creative http://creativecommons.org/licenses/by nd/2.5/au/ Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Disclaimer: The author does not guarantee the accuracy of the notes available and will not be held liable for any damages (including lost marks etc.) as a result of the use of these notes. Use at your own discretion with etc.) caution. Do not rely on them; these notes are not intended to serve as a replacement for your own own.
Business Finance– Semester 2 2009
2
Basic Concepts
Basic Concepts
Background Before we delve into the harder components of business finance, it is imperative that we learn the basics first. Types of Business Forms If you have previously studied Business Studies for the HSC, you can skip this section. Businesses are usually formed based on a set structure. The most common of these are: • Sole Proprietorships This is where the business is owned by a single person. It is very simple, fast to establish and generally has very minimal government regulations. The owner gets to keep all the profits himself so there is incentive to work harder. The downside is that it has unlimited liability (where if the business