2022

UNIVERSITY OF ECONOMICS
FACULTY OF FINANCE

CORPORATE FINANCE

Nguyen Quang Minh Nhi, Ph.D

COURSE OUTLINE

 CHAPTER 1: INTRODUCTION TO CORPORATE FINANCE

 CHAPTER 2: CAPITAL STRUCTURE

 CHAPTER 3: CAPITAL BUDGETING

 CHAPTER 4: WORKING CAPITAL MANAGEMENT

 CHAPTER 5: DIVIDENDS AND DIVIDEND POLICY

 CHAPTER 6: FINANCIAL STATEMENT ANALYSIS

FIN 3004 – CORPORATE FINANCE

CHAPTER I
INTRODUCTION TO CORPORATE FINANCE

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READING
• Chapter 1, Fundamentals of Corporate Finance;
Stephen A. Ross, Randolph W. Westerfield, Bradford
D. Jordan; McGraw‐Hill (2010).
• Chương 1, Giáo trình Tài chính doanh nghiệp;
Nguyễn Hoà Nhân (2013).

CHAPTER OUTLINE

1.1. Form of Business Organization

1.1. Forms of Business Organization
Three major forms in the United States
 Sole Proprietorship
 Partnership
• General
• Limited
 Corporation
• C‐Corp
• S‐Corp
• Limited Liability Company

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1.1.1. Sole Proprietorship
A sole proprietorship is a business owned by one person. 

Advantages Disadvantages
– Easiest to start – Limited to life of owner
– Least regulated – Equity capital limited to 
– Single owner keeps  owner’s personal 
all the profits wealth
– Taxed once as  – Unlimited liability
personal income – Difficult to sell 
ownership interest

1.1.2. Partnership

A partnership is similar to a proprietorship except that there are two 
or more owners (partners) 

Advantages Disadvantages
– Two or more owners – Unlimited liability
– More capital  • General partnership
available • Limited partnership
– Relatively easy to  – Partnership dissolves 
start when one partner dies or 
– Income taxed once  wishes to sell
as personal income – Difficult to transfer 
ownership

1.1.3. Corporation
A business created as a distinct legal entity composed of one or
more individuals or entities
Advantages Disadvantages
– Limited liability – Separation of ownership 
– Unlimited life and management
– Separation of  – Double taxation (income 
ownership and  taxed at the corporate 
management rate and then dividends 
taxed at the personal 
– Transfer of ownership is 
rate)
easy
– Easier to raise capital

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1.2. Financial Manager

Board of 
Directors

Chairman and 
chief executive 
officer (CEO)

Vice president 
Vice president  Vice president Vice president 
human 
marketing finance (CFO) production
resource

Financial  Accounting 
Department Department

Figure 1.1: A sample simplified Organization Chart

1.2. Financial Manager
 Financial managers try to answer some or all of the
questions.
 The top financial manager within a firm is usually the
Chief Financial Officer (CFO)
– Treasurer – oversees cash management, credit
management, capital expenditures, and financial
planning
– Controller – oversees taxes, cost accounting,
financial accounting and data processing
More details: https://www.youtube.com/watch?v=pOQUQHZCKIs

1.3. Corporate Finance
Some important questions that are answered using
finance:
 What long‐term investments should the firm take
on?
 Where will we get the long‐term financing to pay
for the investment?
 How will we manage the everyday financial
activities of the firm?

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1.3. Financial Management Decisions
Capital budgeting
– What long‐term investments or projects should the 
business take on?
Capital structure
– How should we pay for our assets?
– Should we use debt or equity?
Working capital management
– How do we manage the day‐to‐day finances of the 
firm?

1.3.1. Capital budgeting
 The process of planning and managing a firm’s long‐
term investments.
 The financial manager tries to identify investment
opportunities that are worth more to the firm than
they cost to acquire.
 The types of investment opportunities that would
typically be considered depend in part on the nature
of the fi rm’s business.

Balance Sheet Model of the Firm 

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The Capital Budgeting Decision

1.3.2. Capital structure
 The mixture of debt and equity the firm uses to
finance its operations.
 The ways in which the firm obtains and manages the
long‐term financing it needs to support its long‐term
investments.
(1) How much should the firm borrow?
(2) What are the least expensive sources of funds for
the firm?
(3) How and where to raise the money.

The Capital Structure Decision

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1.3.2. Capital structure

1.3.3. Working capital management
 A firm’s short‐term assets and liabilities.
 A day‐to‐day activity that ensures that the firm has
sufficient resources to continue its operations and avoid
costly interruptions.
(1) How much cash and inventory should we keep on hand?
(2) Should we sell on credit? If so, what terms will we offer,
and to whom will we extend them?
(3) How will we obtain any needed short‐term financing?
Will we purchase on credit or will we borrow in the short
term and pay cash? If we borrow in the short term, how and
where should we do it?

Short‐term Asset Management

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1.4. Goal of Financial Management

What should be the goal of a corporation?

1.5.1. The Agency Problem

Agency relationship:
o Principal hires an agent to represent his/her
interests
o Stockholders (principals) hire managers (agents)
to run the company
 Agency problem:
o Conflict of interest between principal and agent
 Management goals and agency costs

1.5.1. The Agency Problem

Agency costs: costs of the conflict of interest between

 Indirect agency costs

 Direct agency costs

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1.5.2. Managing Managers

 Managerial compensation:
– Incentives can be used to align management and
stockholder interests
– The incentives need to be structured carefully to make
sure that they achieve their goal
 Corporate control:
– The threat of a takeover may result in better
management
 Other stakeholders

Figure 1.2: Cash Flows between the Firm and the Financial 
Markets

1.6. Financial Markets

 Cash flows to the firm
 Primary vs. secondary markets
– Dealer vs. auction markets
– Listed vs. over‐the‐counter securities
• NYSE
• NASDAQ
More details: https://www.forex.com/en/market‐analysis/latest‐
research/what‐is‐the‐role‐of‐financial‐markets/