Financial Management - University of Colorado Boulder财务管理-科罗拉多大学博尔德分校.ppt

Financial Management Professor Jaime F Zender A Good Place To Start What is finance? Finance is a hybrid of economics, statistics, and accounting. It is the science of capital. In other words, it considers the allocation of money across investment opportunities. Necessarily draws on these underlying disciplines in making such decisions. We will concentrate on corporate finance rather than personal finance but the issues and concepts are fundamentally the same and I will often draw parallels. Typical Question Three years ago your cousin Ralph opened a brew-pub in downtown Boulder. While it has been operating fairly successfully its survival depends upon some expansion and upgrades in its production equipment. Ralph has come to you as a potential equity investor. The expansion requires $100,000 and the two of you are discussing the ownership stake this would imply for you. Ralph’s Position Ralph argues that three years ago he invested $30,000 of his own capital. He also argues that for three years he has been working at a less than competitive wage (in order to reinvest the generated cash). He estimates this amounts to $40,000 in “sweat equity” for each of the three years. Ralph suggests these facts imply your $100,000 will purchase 40% of the equity. Is this argument valid? Valuation Basics – Where We Are Headed Assets have value due to the payoffs they generate for those that purchase them. What does past investment have to do with this? The price you should be willing to pay for an asset depends upon the future value you will receive from owning that asset. Another piece of the puzzle is that cash today is more valuable than cash tomorrow – a concept we call the “time value of money.” Most business decisions come down to an evaluation of money today versus money tomorrow. Valuation The present value formula is a way to express today’s value of a stream of cash payments to be received in the future. Suppose you expect to receive cash payments of $100, $150, $180,