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Lecture Financial institutions, instruments and markets (6/e): Chapter 5 - Viney

Chapter 5 - Corporations issuing equity in the share market. In this chapter, you will learn: Understand capital budgeting issues, examine issues relevant to the choice between debt and equity funding, outline the flotation and listing (IPO) process and equity-funding alternatives available to newly listed corporations,. | Chapter 5 Corporations Issuing Equity in the Share Market Website: www.asx.com.au 5- Learning Objectives Understand capital budgeting issues Examine issues relevant to the choice between debt and equity funding Outline the flotation and listing (IPO) process and equity-funding alternatives available to newly listed corporations Review compliance requirements of listing a business Explore equity-funding alternatives available to an established listed corporation 5- Chapter Organisation 5.1 The Investment Decision 5.2 The Financing Decision 5.3 Initial Public Offering 5.4 Listing a Business on a Stock Exchange 5.5 Equity Funding for Listed Companies 5.6 Summary 5- 5.1 The Investment Decision The objective of financial management is to maximise shareholder value Four main aspects of financial management 1. Investment decision (capital budgeting) Invest in which assets? 2. Financing decision (capital structure) How to fund the purchase of these assets 5- 5.1 The Investment Decision (cont.) Four main aspects of financial management (cont.) 3. Liquidity (working capital) management How best to manage current assets and current liabilities 4. Dividend policy decision How to retain and/or distribute profits This chapter focuses on the investment and financing decisions 5- 5.1 The Investment Decision (cont.) A corporation first determines the assets in which it will invest funds according to organisational objectives Real assets, e.g. plant and equipment Financial assets, e.g. equities, bonds Competing investment alternatives should be evaluated on the basis of shareholder wealth maximisation Two important measures used to quantify the contribution of an investment to shareholder wealth 1. Net present value (NPV) 2. Internal rate of return (IRR) 5- 5.1 The Investment Decision (cont.) 1. NPV The difference between the present value of cash flows associated with an investment and the cost of the investment The NPV decision rule Accept an investment . | Chapter 5 Corporations Issuing Equity in the Share Market Website: www.asx.com.au 5- Learning Objectives Understand capital budgeting issues Examine issues relevant to the choice between debt and equity funding Outline the flotation and listing (IPO) process and equity-funding alternatives available to newly listed corporations Review compliance requirements of listing a business Explore equity-funding alternatives available to an established listed corporation 5- Chapter Organisation 5.1 The Investment Decision 5.2 The Financing Decision 5.3 Initial Public Offering 5.4 Listing a Business on a Stock Exchange 5.5 Equity Funding for Listed Companies 5.6 Summary 5- 5.1 The Investment Decision The objective of financial management is to maximise shareholder value Four main aspects of financial management 1. Investment decision (capital budgeting) Invest in which assets? 2. Financing decision (capital structure) How to fund the purchase of these assets 5- 5.1 The Investment