Introduction to finance &  ethics in finance

Topics: Capital asset, Investment, Asset Pages: 11 (1188 words) Published: October 10, 2013
17/07/2013

Finance
Semester 2, 2013
Seminar 1 
Introduction to finance & 
ethics in finance
Ross et al. chapter 1.
These powerpoint slides have been adapted from Frank Finn  Professor of Finance Tom Smith’s (UQ) teaching material of  “Three key finance ideas of valuation” and Dr. Scott McCarthy’s  teaching material. 

1

What is Finance?
• Every business is a process of acquiring and
disposing assets: real assets and financial
assets.
• Finance is a science of valuation and
management of assets.
• The field of finance deals with the concepts
of time, money, risk and how they are
interrelated.

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Two Key Valuation Ideas
The Time Value of Money
In studying the time value of money, we will see it forms
the basis for all asset valuations. In this course, we will
study the following aspects of the time value of money:
Time Value of Money

Financial
Mathematics

Valuing
Stocks

Valuing
Bonds

Making
Investment
Decisions

Two Key Valuation Ideas
Diversification
‐ Financial market participants want to make as much
money as possible with the least risk. To reduce risk,
market participants can diversify. If everyone diversifies,
this tells us something about how assets are priced: it tells us the return required for a given level of risk.
‐ In this course, we will study the relationship between
risk and return; portfolio theory, Capital Asset Pricing
Model, cost of capitals, and market efficiency.

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What is corporate finance?
• Corporate finance addresses 3 questions:
– what do businesses invest in?
– how do businesses fund these investments?
– how do businesses manage everyday financial 
activities?

• In this course we will focus on the first two.

5

What is corporate finance?
• Examples:
• What do businesses invest in?
– machinery, buildings, takeovers (of other businesses)

• How do businesses finance them?
– Business can raise external funds in two ways.
– What are these?

• What are examples of these?
6

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What is corporate finance?
Examples of companies raising funds
• Web links: file on BB. “D & E for seminar”
– Equity: Bluescope & Ten
– Debt: Fortescue & Queensland Motorways
– Quick background on D & E

7

Types of business organizations
• In this course we will concentrate on large 
companies. But most of the theories we consider 
apply across the spectrum of businesses sizes.
• Three major forms in Australia and New Zealand
1. Sole proprietorship
2. Partnership
• General
• Limited

3. Corporation (limited company)
8

4

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Sole proprietorship
Advantages

Disadvantages

• Easiest to start
• Least regulated
• Single owner keeps all 
the profits
• Usually involved in day‐
to‐day business running
• Taxed once as personal 
income

• Limited to life of owner
• Equity capital limited to 
owner’s personal 
wealth
• Unlimited liability
• Difficult to sell 
ownership interest

Copyright © 2011 McGraw‐Hill Australia 
Pty Ltd

Partnership
Advantages

Disadvantages

• Two or more owners
• Usually more capital 
available
• Relatively easy to start
• Usually involved in day‐
to‐day business running
• Income taxed once as 
personal income

• Unlimited liability
• General partnership
• Limited partnership
• Partnership dissolves 
when one partner dies 
or wishes to sell
• Difficult to transfer 
ownership

Copyright © 2011 McGraw‐Hill Australia 
Pty Ltd

5

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Corporation
Advantages

Disadvantages

• Limited liability
• Unlimited life
• Separation of 
ownership and 
management
• Transfer of ownership 
is easy
• Easier to raise capital

• Separation of 
ownership and 
management
• Taxation of company 
profits can be an 
issue

Copyright © 2011 McGraw‐Hill Australia 
Pty Ltd

Types of business organizations
• So, in a large public listed company (do you ...
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