CHAPTER 1

Objective of firm or goal of firm or factor will affect stock price

Cash flow

 The expectation of the firm can generate cash flow in future

Timing of cash flow

 Refers to when the firm receive the cash and when they pay out the cash
 The sooner of cash inflow and slower of cash outflow will be increasing the stock price

Risk of Cash flow

 The less certain of owner and investor about the firm expected future cash flow the value of
the company will be lower
 As the risk increased, the stock price will be going down

The role of financial manager

Investment decision

 The investment or capital budgeting decision that link the left hand-side of the balance
sheet. The determination of total amount of assets the firm needed.
 The investment decision include create profit and revenue or saving money
 Example of investment decision investing in physical and investing in financial assets

Financing decision

 The financing decision will determine the capital structure of the firm that link to the right
hand-side of the balance sheet.
 The financing decision determine the mix and type of liabilities found on the balance sheet
 Example for long term financing common stock, long term debt
 Example for short term financing trade credit short term bank loan

Asset management decision

 Once the asset have been taken by the financing provide, the asset must be managing
efficiency. Asset management decision involved the ways of managing asset in order to
achieve the goal of firm
Responsibility of financial manager

Forecasting and planning

 Interact with other executives to plan for the company futures

Major investment and financing decisions

 The firm requires investments in plant, equipment and inventory, for example the firm
finance with debt or equity, and if debt financing is used should it be long term or short term

Coordination and control

 The financial manager must interact with other executives to ensure that the firm is
operated as efficiently as possible

Dealing with the financial market

 The financial manager must deal with the money and capital market, the money market is
for short term borrowing and investment, capital market is for long term borrowing and
investment

Function of the central bank

 It as an agent for government to carry out monetary policies

Future Value = Present Value x FVIF

= Present Value (1 + interest rate) ^n

Present Value = Future Value x PVIF

= Future Value (1/1 + interest rate) ^n

Chapter 5

NPV Formula

PVIF = (1/ 1+r) ^n

= 4 s.f
Chapter 6

Classification of sources of finance

Temporary sources of financing,

 it is another form of current liabilities. Note payable include short term bank loans and
commercial paper. And it least than one years.

Spontaneous sources of financing

 It consists of trade credit and other accounts payable. Trade credit is often made available
spontaneously or on demand from the suppliers. These expenses accrue throughout the
period until they are paid.

Permanent sources of financing

 Sources of financing that do not due within the year, including intermediate term loans, long
term debts, preferred stock and common equity.

Type of finance

Short term finance

Is used by business as a form of working capital to its day to day business operation, for example,
short term bank loan, and overdraft.

Medium term finance

Such as medium term loan, hire purchases and other. Provided largely by bank usually in the form of
loan with repayment target. Bank lending is volatile source of finance.

Long term finance

Firm can issue bond, loan notes or debentures. These securities are fixed interest loan to firms. Loan
note holder have a prior claim on company share.
Chapter 7

Hire Purchases

 Hire Purchases is a kind of instalment purchases where the hirer agree to pay the cost of the
equipment in different instalment over a period of time.
 The instalment cover the principal amount and the interest cost.
 The hirer get the possession of the asset as the hire purchases agreement is signed.
 The hirer become the owner of the equipment after the last payment is done.
 The hirer has the right to terminate the agreement any time before taking the ownership of
the asset.

Chapter 8

Advantage of Bond

TO issuing Firm

Tax deduction of interest payment

 Coupon payment to bondholders are tax deductible for the issuing firm

Increase in earnings per share

 Since a bond is a fixed income security, the surplus earnings available to shareholders after
deducting interest payment to bondholders during good times would be higher.

Maintain control of the firm

 Since bondholders are creditors of the firm. They do not have controlling right over the
management of the firm as in the case of the shareholders. As such the shareholders of the
firm still maintain control of the firm.