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103-551: After the first Five-Year Plan , the People's Republic of China continued its socialist construction by introducing "Three Red Banners Movement". The General Line directed the Chinese people to "go all out, aim high, and build socialism with greater, faster, better, and more economical results." By the end of 1958, nearly all Chinese peasants had been organized into communes averaging 5000 households each. All privately owned property

206-534: A Soviet -style command economy to a socialist market economy ( socialism with Chinese characteristics ), the plans since the 11th Five-Year Plan for 2006 to 2010 have been referred to in Chinese as "guidelines" ( Chinese : 规划 ; pinyin : guīhuà ) instead of as "plans" ( Chinese : 计划 ; pinyin : jìhuà ). Medium and long-term planning are central to coordinating state activity across many policy areas in China and China's Five-Year Plans are one of

309-403: A stable or "smooth" dividend payout - as far as is reasonable given earnings prospects and sustainability - which will then positively impact share price; see Lintner model . Cash dividends may also allow management to convey (insider) information about corporate performance; and increasing a company's dividend payout may then predict (or lead to) favorable performance of the company's stock in

412-414: A "value- space "), where NPV is then a function of several variables . See also Stress testing . Using a related technique, analysts also run scenario based forecasts of NPV. Here, a scenario comprises a particular outcome for economy-wide, "global" factors ( demand for the product , exchange rates , commodity prices , etc.) as well as for company-specific factors ( unit costs , etc.). As an example,

515-417: A change in that factor is then observed, and is calculated as a "slope": ΔNPV / Δfactor. For example, the analyst will determine NPV at various growth rates in annual revenue as specified (usually at set increments, e.g. -10%, -5%, 0%, 5%...), and then determine the sensitivity using this formula. Often, several variables may be of interest, and their various combinations produce a "value- surface " (or even

618-567: A greater focus on consumer goods. It called for enhancing "eating, clothing, and daily use" items ( chi, chuan, yong ). During discussions of the Third Five Year Plan, Mao acknowledged that during the Great Leap Forward, "We set revenue too high and extended the infrastructure battlefront too long," and that it was "best to do less and well." The Plan ultimately called for the prioritization of national defense in

721-514: A higher tax rate as compared, e.g., to capital gains ; see dividend tax and Retained earnings § Tax implications . Here, per the Modigliani–Miller theorem : if there are no such disadvantages - and companies can raise equity finance cheaply, i.e. can issue stock at low cost - then dividend policy is value neutral; if dividends suffer a tax disadvantage, then increasing dividends should reduce firm value. Regardless, but particularly in

824-434: A listing of the various transaction-types here, and Financial analyst § Investment Banking for a description of the role. Financial risk management , generically, is focused on measuring and managing market risk , credit risk and operational risk . Within corporates, the scope is broadened to overlap enterprise risk management , and then addresses risks to the firm's overall strategic objectives , focusing on

927-423: A modern CFO. Working capital is the amount of funds that are necessary for an organization to continue its ongoing business operations, until the firm is reimbursed through payments for the goods or services it has delivered to its customers. Working capital is measured through the difference between resources in cash or readily convertible into cash (Current Assets), and cash requirements (Current Liabilities). As

1030-514: A new phase, one of exploration and development. In April 1979, the central government formally put forward new principles of readjustment, reform, rectification and improvement. According to China Daily , the 6th Plan was first planned as part of the "Ten Year National Economic Development Plan Outline for 1976–1985" until the State Council decided to redraft the country's mid- and long-term plans in 1980. The 1982 national planning meeting

1133-569: A particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.) In conjunction with NPV, there are several other measures used as (secondary) selection criteria in corporate finance; see Capital budgeting § Ranked projects . These are visible from

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1236-567: A result, capital resource allocations relating to working capital are always current, i.e. short-term. In addition to time horizon , working capital management differs from capital budgeting in terms of discounting and profitability considerations; decisions here are also "reversible" to a much larger extent. (Considerations as to risk appetite and return targets remain identical, although some constraints – such as those imposed by loan covenants – may be more relevant here). The (short term) goals of working capital are therefore not approached on

1339-729: A series of social and economic development initiatives issued by the Chinese Communist Party (CCP) since 1953 in the People's Republic of China . Since 1949, the CCP has shaped the Chinese economy through the plenums of its Central Committee and national party congresses . Planning is a key characteristic of the nominally socialist economies , and one plan established for the entire country normally contains detailed economic development guidelines for all its regions. In order to more accurately reflect China's transition from

1442-442: A stock buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies will pay "dividends" from stock rather than in cash or via a share buyback as mentioned; see Corporate action . There are several schools of thought on dividends, in particular re their impact on firm value. A key consideration will be whether there are any tax disadvantages associated with dividends: i.e. dividends attract

1545-561: Is concerned with financial policies regarding the payment of a cash dividend in the present or retaining earnings and then paying an increased dividend at a later stage. The policy will be set based upon the type of company and what management determines is the best use of those dividend resources for the firm and its shareholders. Practical and theoretical considerations - interacting with the above funding and investment decisioning, and re overall firm value - will inform this thinking. In general, whether to issue dividends, and what amount,

1648-457: Is concerned with the setting of criteria about which value-adding projects should receive investment funding , and whether to finance that investment with equity or debt capital. Working capital management is the management of the company's monetary funds that deal with the short-term operating balance of current assets and current liabilities ; the focus here is on managing cash, inventories , and short-term borrowing and lending (such as

1751-414: Is determined on the basis of the company's unappropriated profit (excess cash) and influenced by the company's long-term earning power. In all instances, as above, the appropriate dividend policy is in parallel directed by that which maximizes long-term shareholder value. When cash surplus exists and is not needed by the firm, then management is expected to pay out some or all of those surplus earnings in

1854-419: Is likely, and excess cash surplus exists and is not needed, then management is expected to pay out some or all of those surplus earnings in the form of cash dividends or to repurchase the company's stock through a share buyback program. Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. The sources of financing are, generically, capital self-generated by

1957-432: Is on major " projects " - often investments in other firms , or expansion into new markets or geographies - but may extend also to new plants , new / replacement machinery, new products , and research and development programs; day to day operational expenditure is the realm of financial management as below . In general, each " project 's" value will be estimated using a discounted cash flow (DCF) valuation, and

2060-458: Is raised in order to create, develop, grow or acquire businesses. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. Financial management overlaps with the financial function of the accounting profession . However, financial accounting

2163-557: Is referred to as working capital management . These involve managing the relationship between a firm's short-term assets and its short-term liabilities . In general this is as follows: As above, the goal of Corporate Finance is the maximization of firm value. In the context of long term, capital budgeting, firm value is enhanced through appropriately selecting and funding NPV positive investments. These investments, in turn, have implications in terms of cash flow and cost of capital . The goal of Working Capital (i.e. short term) management

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2266-413: Is right-financing whereby investment banks and corporations can enhance investment return and company value over time by determining the right investment objectives, policy framework, institutional structure, source of financing (debt or equity) and expenditure framework within a given economy and under given market conditions. One of the more recent innovations in this area from a theoretical point of view

2369-532: Is the Pecking Order Theory ( Stewart Myers ), which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates . Also, the capital structure substitution theory hypothesizes that management manipulates the capital structure such that earnings per share (EPS) are maximized. An emerging area in finance theory

2472-424: Is the market timing hypothesis . This hypothesis, inspired by the behavioral finance literature, states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt and equity. The process of allocating financial resources to major investment - or capital expenditure is known as capital budgeting . Consistent with the overall goal of increasing firm value ,

2575-445: Is the area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the value of the firm to the shareholders , and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value . Correspondingly, corporate finance comprises two main sub-disciplines. Capital budgeting

2678-520: Is the reporting of historical financial information, while financial management is concerned with the deployment of capital resources to increase a firm's value to the shareholders. Corporate finance for the pre-industrial world began to emerge in the Italian city-states and the low countries of Europe from the 15th century. The Dutch East India Company (also known by the abbreviation " VOC " in Dutch)

2781-502: Is then observed. This histogram provides information not visible from the static DCF: for example, it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value). Continuing the above example: instead of assigning three discrete values to revenue growth, and to the other relevant variables, the analyst would assign an appropriate probability distribution to each variable (commonly triangular or beta ), and, where possible, specify

2884-407: Is therefore to ensure that the firm is able to operate , and that it has sufficient cash flow to service long-term debt, and to satisfy both maturing short-term debt and upcoming operational expenses. In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital; See Economic value added (EVA). Managing short term finance and long term finance is one task of

2987-482: The current assets (generally cash and cash equivalents , inventories and debtors ) and the short term financing, such that cash flows and returns are acceptable. Use of the term "corporate finance" varies considerably across the world. In the United States it is used, as above, to describe activities, analytical methods and techniques that deal with many aspects of a company's finances and capital. In

3090-596: The CCP Central Committee in the fall prior to the start of a Plan period. More detailed plans are approved by the National People's Congress the following March. These plans establish national priorities and outline how they will be met. Administratively, the Plans result in the development of numerous specific action plans across different levels of administration. These programs evolve over

3193-608: The Central Military Commission , and the full proposal for the plan was released following the plenum and approved by the National People's Congress on 14 March 2011. The plan shifted emphasis from investment towards consumption and development from urban and coastal areas toward rural and inland areas – initially by developing small cities and greenfield districts to absorb coastal migration. The plan also continued to advocate objectives set out in

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3296-495: The United Kingdom and Commonwealth countries, the terms "corporate finance" and "corporate financier" tend to be associated with investment banking – i.e. with transactions in which capital is raised for the corporation or shareholders; the services themselves are often referred to as advisory, financial advisory, deal advisory and transaction advisory services. See under Investment banking § Corporate finance for

3399-499: The Walter model , dividends are paid only if capital retained will earn a higher return than that available to investors (proxied: ROE > Ke ). Management may also want to "manipulate" the capital structure - including by paying or not paying dividends - such that earnings per share are maximized; see Capital structure substitution theory . Managing the corporation's working capital position to sustain ongoing business operations

3502-465: The great sparrow campaign , which led to an infestation of locusts, as well as unprecedented natural and weather based issues, caused a huge decrease in food production. Simultaneously, rural officials, under huge pressure to meet their quotas, vastly overstated how much grain was available. Thus, a massive nationwide famine ensued. The policies of the Second Plan's Great Leap Forward departed from

3605-580: The " Made in China 2025 " plan. The 14th Five-Year Plan was drafted during the fifth plenum of the 19th Central Committee held from 26 to 29 October 2020. Han Wenxiu, the deputy director of the Office of the Central Finance and Economic Commission, said CCP general secretary Xi Jinping had personally led the drafting process through multiple meetings of the Politburo, its standing committee, and

3708-419: The "flexible and staged nature" of the investment is modelled , and hence "all" potential payoffs are considered. See further under Real options valuation . The difference between the two valuations is the "value of flexibility" inherent in the project. The two most common tools are Decision Tree Analysis (DTA) and real options valuation (ROV); they may often be used interchangeably: Dividend policy

3811-423: The 10th Five-Year Plan. The 11th Five-Year Plan introduced a new category of "binding targets" ( yueshuxing zhibiao ) intended as government promises. These binding targets have since been used especially in non-economic policy areas like environmental protection and land management. Of 22 targets listed in the 11th Five-Year Plan, eight of them were binding targets. These binding targets were incorporated into

3914-584: The 1976–1985 Ten Year Plan Outline of Developing National Economy (Draft) in 1975, which included the 5th Five-Year Plan. In March 1978, the Ten Year Development Outline was amended because the original version in 1975 stipulated that by 1985, steel and petroleum outputs should reach 60 and 250 million tons respectively, and 120 large projects, including 10 steel production bases, nine non-ferrous metal bases, eight coal bases and 10 oil and gas fields, should be built. To achieve these goals,

4017-597: The CPC had determined that gross value of agricultural products should increase 270%; in fact, the gain was a considerably more modest 35%. The country saw increases in capital construction over those observed during the first Five-Year Plan and also saw significant increases in industry (doubling output value) and income (workers and farmers, increase by as much as 30%). However, the Great Leap Forward , which diverted millions of agricultural workers into industry, and

4120-558: The Conference of CCP Delegates convened to adopt the "Proposal for the Seventh Five Year Plan" which was set to begin in 1986. The proposal demonstrated a shift from direct government control over enterprises to using indirect macroeconomic controls to "establish a new system for the socialist economy." In March 1986, the State Council submitted "The 7th Five Year Plan for National Economic and Social Development of

4223-474: The DCF and include discounted payback period , IRR , Modified IRR , equivalent annuity , capital efficiency , and ROI . Alternatives (complements) to NPV, which more directly consider economic profit , include residual income valuation , MVA / EVA ( Joel Stern , Stern Stewart & Co ) and APV ( Stewart Myers ). With the cost of capital correctly and correspondingly adjusted, these valuations should yield

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4326-423: The DCF model inputs. In many cases, for example R&D projects, a project may open (or close) various paths of action to the company, but this reality will not (typically) be captured in a strict NPV approach. Some analysts account for this uncertainty by adjusting the discount rate (e.g. by increasing the cost of capital ) or the cash flows (using certainty equivalents , or applying (subjective) "haircuts" to

4429-514: The Eleventh Five-Year Plan to enhance environmental protection, accelerate the process of opening and reform, and emphasize Hong Kong's role as a center of international finance. It prioritized more equitable wealth distribution, increased domestic consumption, and improved social infrastructure and social safety nets. Improvements in the social safety net were intended to reduce precautionary saving . The plan sought to expand

4532-541: The First Five-Year Plan was quite successful, especially in those areas emphasized by the Soviet-style development strategy. During this Plan period, China began developing a heavy-industrial base and brought its industrial production above what it had been prior to war. China also raised its agricultural production to above prewar levels, resulting primarily from gains in efficiency brought about by

4635-1075: The People's Republic of China, 1986–1990" to the Fourth Session of the Sixth National People's Congress for review and ratification. It was the first time in China's history that an all-round plan for social and economic development was created at the start of a new five-year plan. The national goals of the Plan included speeding up development on the coast, with inland regions role's being to "support and accelerate coastal development." During this Plan period, different regions of China were encouraged to develop by leveraging their respective advantages. Coastal regions were instructed to focused on "the restructuring of traditional industries, new industries, and consumer goods production." Western regions were to focus on processing and agriculture. In central regions, energy, construction, and minerals were

4738-444: The Plan, considerable success was achieved. In 1977, the gross output value of industry and agriculture reached 505.5 billion yuan, 4.4% above-target and representing an increase of 10.4% compared with the previous year. Gross domestic product for 1978 reached 301 billion yuan, an increase of 12.3% compared with 1977, and an increase of 19.4% compared with 1976. However, during this period, the Chinese economy developed too quickly, and

4841-652: The United States and of History of private equity and venture capital . The primary goal of financial management is to maximize or to continually increase shareholder value. This requires that managers find an appropriate balance between: investments in "projects" that increase the firm's long term profitability; and paying excess cash in the form of dividends to shareholders; also considered will be paying back creditor related debt. Choosing between investment projects will thus be based upon several inter-related criteria. (1) Corporate management seeks to maximize

4944-438: The United States would ultimately invade China. Support among leadership for Mao's proposed Third Front construction increased as a result and changed the direction of the Third Five Year Plan. The Fourth Five Year Plan sought decentralization and prioritized "small scale, indigenous, and labor intensive" development projects over "large scale, foreign, and capital intensive" development. The central government stipulated

5047-462: The analyst may specify various revenue growth scenarios (e.g. -5% for "Worst Case", +5% for "Likely Case" and +15% for "Best Case"), where all key inputs are adjusted so as to be consistent with the growth assumptions, and calculate the NPV for each. Note that for scenario based analysis, the various combinations of inputs must be internally consistent (see discussion at Financial modeling ), whereas for

5150-490: The approach in the Soviet-inspired First Plan, which stressed central command and extensive planning. Instead, the approach entailed local areas marshalling all available resources for large projects. In 1960–61, attempts were made to redirect twenty million workers into agricultural production and to reallocate investment into those industrial sectors that could further support agriculture. This shift

5253-476: The approach in the first Five-Year Plan was for the government to buy them out, including through coercing reluctant sellers if necessary. Government control over industry was increased during this period by applying financial pressures and inducements to convince owners of private, modern firms to sell them to the state or convert them into joint public-private enterprises under state control. The Plan strained agricultural production. In terms of economic growth,

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5356-445: The assets of the company). Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation . Terms of the preferred stock are stated in a "Certificate of Designation". Similar to bonds, preferred stocks are rated by the major credit-rating companies. The rating for preferreds is generally lower, since preferred dividends do not carry

5459-415: The company (or appreciate in value) over time to make their investment a profitable purchase. Shareholder value is increased when corporations invest equity capital and other funds into projects (or investments) that earn a positive rate of return for the owners. Investors prefer to buy shares of stock in companies that will consistently earn a positive rate of return on capital in the future, thus increasing

5562-415: The course of the plan period. As academic Sebastian Heilmann observes, this process is best viewed as a planning coordination and evaluation cycle rather than a unified blueprint. China's Five-Year Plans have been praised for their efficiency, capabilities and their importance to rapid economic growth, development, corporate finance and industrial policies . Having restored a viable economic base,

5665-498: The criteria for local cadre performance evaluations. The Plan also reflected a change in terminology to the allocation of administrative resources via "programs" rather than "plans." The Twelfth Five-Year Guideline was debated in mid-October 2010 at the fifth plenary session of the 17th Central Committee of the Chinese Communist Party , the same session in which Xi Jinping was selected as Vice Chairman of

5768-417: The decision. Shareholders of a " growth stock ", for example, expect that the company will retain (most of) the excess cash surplus so as to fund future projects internally to help increase the value of the firm. Shareholders of value- or secondary stocks, on the other hand, would prefer management to pay surplus earnings in the form of cash dividends, especially when a positive return cannot be earned through

5871-404: The decisioning here focuses on whether the investment in question is worthy of funding through the firm's capitalization structures (debt, equity or retained earnings as above). Here, to be considered acceptable, the investment must be value additive re: (i) improved operating profit and cash flows ; as combined with (ii) any new funding commitments and capital implications. Re the latter: if

5974-535: The drafting panel that he headed. The Plan was drafted against the backdrop of worsening China–United States relations and the COVID-19 pandemic , which caused China's economy to shrink in the first quarter of 2020 – the first time in 44 years. Continuing themes from the prior two plans, the Fourteenth Five-Year Plan also seeks to boost the services sector, increase urbanization, and expand

6077-734: The firm and capital from external funders, obtained by issuing new debt and equity (and hybrid- or convertible securities ). However, as above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix will impact the valuation of the firm, and a considered decision is required here. See Balance sheet , WACC . Finally, there is much theoretical discussion as to other considerations that management might weigh here. Corporations may rely on borrowed funds (debt capital or credit ) as sources of investment to sustain ongoing business operations or to fund future growth. Debt comes in several forms, such as through bank loans, notes payable, or bonds issued to

6180-420: The firm's capital resources and surplus cash on investments and projects so the company can continue to expand its business operations into the future. When companies reach maturity levels within their industry (i.e. companies that earn approximately average or lower returns on invested capital), managers of these companies will use surplus cash to payout dividends to shareholders. Thus, when no growth or expansion

6283-498: The firm. The hurdle rate is the minimum acceptable return on an investment – i.e., the project appropriate discount rate . The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the project-relevant financing mix. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for

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6386-563: The focus on developing industry, northeast China was the region which received the greatest share of state funds during the First Plan. The First Five-Year Plan phrased its developmental focus in the terminology of revolution. It attributed the backwards state of China's economy to contradictions between the developing productive forces and the capitalist relations of production . Agriculture, fishing, and forestry would be collectivized. Regarding commercial and services industries,

6489-533: The focus. During the 10th Five-Year Plan, the strategic purpose of planning shifted from narrow, quantitative growth targets to coordinating structural and qualitative changes in economic and social growth targets. The Plan described science, technology, and human resources as decisive areas to improve for China to catch-up with the most advanced countries. Focuses included growing the services sector, developing domestic economic demand, rural urbanization, and western development. Environmental sustainability

6592-463: The forecast numbers; see Penalized present value ). Even when employed, however, these latter methods do not normally properly account for changes in risk over the project's lifecycle and hence fail to appropriately adapt the risk adjustment. Management will therefore (sometimes) employ tools which place an explicit value on these options. So, whereas in a DCF valuation the most likely or average or scenario specific cash flows are discounted, here

6695-412: The form of cash dividends or to repurchase the company's stock through a share buyback program. Thus, if there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, and excess cash surplus is not needed, then management should return (some or all of) the excess cash to shareholders as dividends. This is the general case, however the "style" of the stock may also impact

6798-474: The future; see Dividend signaling hypothesis The second set relates to management's thinking re capital structure and earnings, overlapping the above . Under a "Residual dividend policy" - i.e. as contrasted with a "smoothed" payout policy - the firm will use retained profits to finance capital investments if less / cheaper than the same via equity financing; see again Pecking order theory . Similarly, under

6901-399: The government would invest 70 billion yuan in infrastructure construction, equaling total national investment over the previous 28 years. These were impossible targets and ran counter to economic development rules. The Plan put forward suggestions to set up an independent and comparatively complete industrial system and national economic system from 1978 to 1980. With the implementation of

7004-484: The initial investment outlay is the NPV . See Financial modeling § Accounting for general discussion, and Valuation using discounted cash flows for the mechanics, with discussion re modifications for corporate finance. The NPV is greatly affected by the discount rate . Thus, identifying the proper discount rate – often termed, the project "hurdle rate" – is critical to choosing appropriate projects and investments for

7107-449: The investment is large in the context of the firm as a whole, so the discount rate applied by outside investors to the (private) firm's equity may be adjusted upwards to reflect the new level of risk, thus impacting future financing activities and overall valuation. More sophisticated treatments will thus produce accompanying sensitivity - and risk metrics , and will incorporate any inherent contingencies . The focus of capital budgeting

7210-456: The leadership under Chairman Mao Zedong , Premier Zhou Enlai , and other revolutionary veterans sought to implement what they termed a socialist transformation of China. The First Five-Year Plan was deeply influenced by Soviet methodologies and assistance from Soviet planners. Industrial development was the primary goal. With Soviet assistance in the form of both funds and experts, China began to develop industries from scratch. Consistent with

7313-450: The light of a possible big war, actively preparing for conflicts and speeding up construction in three key areas; national defense, science and technology, and industry and transport infrastructure. The turn towards a greater emphasis on developing heavy industries and national defense industries was prompted by the Gulf of Tonkin incident , which increased fears among Chinese leadership that

7416-405: The limitations of sensitivity and scenario analyses by examining the effects of all possible combinations of variables and their realizations" is to construct stochastic or probabilistic financial models – as opposed to the traditional static and deterministic models as above. For this purpose, the most common method is to use Monte Carlo simulation to analyze the project's NPV. This method

7519-527: The market value of the stock of that corporation. Shareholder value may also be increased when corporations payout excess cash surplus (funds from retained earnings that are not needed for business) in the form of dividends. Preferred stock is a specialized form of financing which combines properties of common stock and debt instruments, and is generally considered a hybrid security. Preferreds are senior (i.e. higher ranking) to common stock , but subordinate to bonds in terms of claim (or rights to their share of

7622-481: The most prominent examples of this approach. Through the Five-Year Plans, the CCP and the government establish their policy priorities. Five-Year Plans continue to be a central means of organizing policy in China, especially in the areas of environmental protection , education , and industrial policy . The initial formulation of a Five-Year Plan begins with fairly short, general guidelines prepared by

7725-491: The obligation in full whenever the company feels it is in their best interest to pay off the debt payments. If interest expenses cannot be made by the corporation through cash payments, the firm may also use collateral assets as a form of repaying their debt obligations (or through the process of liquidation ). Corporations can alternatively sell shares of the company to investors to raise capital. Investors, or shareholders, expect that there will be an upward trend in value of

7828-408: The observed or supposed correlation between the variables. These distributions would then be "sampled" repeatedly – incorporating this correlation – so as to generate several thousand random but possible scenarios, with corresponding valuations, which are then used to generate the NPV histogram. The resultant statistics ( average NPV and standard deviation of NPV) will be a more accurate mirror of

7931-465: The opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (first applied in a corporate finance setting by Joel Dean in 1951). This requires estimating the size and timing of all of the incremental cash flows resulting from the project. Such future cash flows are then discounted to determine their present value (see Time value of money ). These present values are then summed, and this sum net of

8034-399: The planning of value-adding, long-term corporate financial projects relating to investments funded through and affecting the firm's capital structure , and where management must allocate the firm's limited resources between competing opportunities (projects). Capital budgeting is thus also concerned with the setting of criteria about which projects should receive investment funding to increase

8137-418: The project's "randomness" than the variance observed under the scenario based approach. (These are often used as estimates of the underlying " spot price " and volatility for the real option valuation below; see Real options valuation § Valuation inputs .) A more robust Monte Carlo model would include the possible occurrence of risk events - e.g., a credit crunch - that drive variations in one or more of

8240-505: The public. Bonds require the corporation to make regular interest payments (interest expenses) on the borrowed capital until the debt reaches its maturity date, therein the firm must pay back the obligation in full. One exception is zero-coupon bonds (or "zeros"). Debt payments can also be made in the form of sinking fund provisions, whereby the corporation pays annual installments of the borrowed debt above regular interest charges. Corporations that issue callable bonds are entitled to pay back

8343-488: The reinvestment of undistributed earnings; a share buyback program may be accepted when the value of the stock is greater than the returns to be realized from the reinvestment of undistributed profits. Management will also choose the form of the dividend distribution, as stated, generally as cash dividends or via a share buyback . Various factors may be taken into consideration: where shareholders must pay tax on dividends , firms may elect to retain earnings or to perform

8446-401: The reorganization and cooperation achieved through cooperative farming. Although urbanization had not been a specific goal of the plan's focus on industrialization, industrialization also prompted extensive urban growth. By 1956, China had completed its socialist transformation of the domestic economy. This plan was created to accomplish several tasks, including: The Political Bureau of

8549-422: The rise of managerial capitalism and common stock finance, with share capital raised through listings , in preference to other sources of capital . Modern corporate finance, alongside investment management , developed in the second half of the 20th century, particularly driven by innovations in theory and practice in the United States and Britain. Here, see the later sections of History of banking in

8652-440: The same basis as (long term) profitability, and working capital management applies different criteria in allocating resources: the main considerations are (1) cash flow / liquidity and (2) profitability / return on capital (of which cash flow is probably the most important). Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing

8755-416: The same guarantees as interest payments from bonds and they are junior to all creditors. Preferred stock is a special class of shares which may have any combination of features not possessed by common stock. The following features are usually associated with preferred stock: As mentioned, the financing mix will impact the valuation of the firm: there are then two interrelated considerations here: Much of

8858-423: The same result as the DCF. See also list of valuation topics . Given the uncertainty inherent in project forecasting and valuation, analysts will wish to assess the sensitivity of project NPV to the various inputs (i.e. assumptions) to the DCF model . In a typical sensitivity analysis the analyst will vary one key factor while holding all other inputs constant, ceteris paribus . The sensitivity of NPV to

8961-412: The scenario approach above, the simulation produces several thousand random but possible outcomes, or trials, "covering all conceivable real world contingencies in proportion to their likelihood;" see Monte Carlo Simulation versus "What If" Scenarios . The output is then a histogram of project NPV, and the average NPV of the potential investment – as well as its volatility and other sensitivities –

9064-403: The second (more realistic) case, other considerations apply. The first set relates to investor preferences and behavior (see Clientele effect ). Investors are seen to prefer a “bird in the hand” - i.e. cash dividends are certain as compared to income from future capital gains - and in fact, may employ some form of dividend valuation model in valuing shares. Relatedly, investors will then prefer

9167-444: The sensitivity approach these need not be so. An application of this methodology is to determine an " unbiased " NPV, where management determines a (subjective) probability for each scenario – the NPV for the project is then the probability-weighted average of the various scenarios; see First Chicago Method . (See also rNPV , where cash flows, as opposed to scenarios, are probability-weighted.) A further advancement which "overcomes

9270-586: The services industry in order to increase employment and continue urbanization to help raise real wages . Continuing themes from the Twelfth Five-Year Plan, the Thirteenth Five-Year Plan also sought to boost the services sector, increase urbanization, and expand the social safety net to reduce precautionary savings. It also emphasized innovation, the completion of building a moderately prosperous society , and started

9373-436: The social safety net to reduce precautionary savings. To address the aging of China's population , the Plan seeks to expand healthcare and retirement system initiatives. The Plan also emphasizes high-tech innovation. [REDACTED] This article incorporates text from this source, which is in the public domain . Country Studies . Federal Research Division . Corporate finance Corporate finance

9476-415: The terms on credit extended to customers). The terms corporate finance and corporate financier are also associated with investment banking . The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms "corporate finance" and "corporate financier" may be associated with transactions in which capital

9579-488: The theory here, falls under the umbrella of the Trade-Off Theory in which firms are assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when choosing how to allocate the company's resources. However economists have developed a set of alternative theories about how managers allocate a corporation's finances. One of the main alternative theories of how firms manage their capital funds

9682-512: The value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk. (2) These projects must also be financed appropriately. (3) If no growth is possible by the company and excess cash surplus is not needed to the firm, then financial theory suggests that management should return some or all of the excess cash to shareholders (i.e., distribution via dividends). The first two criteria concern " capital budgeting ",

9785-536: The value of the firm, and whether to finance that investment with equity or debt capital. Investments should be made on the basis of value-added to the future of the corporation. Projects that increase a firm's value may include a wide variety of different types of investments, including but not limited to, expansion policies, or mergers and acquisitions . The third criterion relates to dividend policy . In general, managers of growth companies (i.e. firms that earn high rates of return on invested capital) will use most of

9888-413: The very high goals triggered the onset of yet another round of mistakes. In December 1978, the 3rd Plenary Session of the 11th Central Committee of the Chinese Communist Party shifted the work focus of the CCP to modernization. The Session emphasized that the development should follow economic rules and proposed readjustment and reform measures, which indicated that national economic development had entered

9991-475: Was again mainly focused on the drafting of the Plan. It was only in December that year that the fifth meeting of the 5th National People's Congress officially ratified the Plan. The Sixth Five-Year Plan was the first to address government policy support for solar PV panel manufacturing. Policy support for solar panel manufacturing has been a part of every Five-Year Plan since. In late September 1985,

10094-407: Was also addressed. Goals included increasing forest coverage to 18.2%, and the urban green rate to 35%. The total amount of major urban and rural pollutants discharged were targeted for a 10% reduction as compared with 2000, and more measures would be taken to protect and save natural resources. The planning philosophy for the 11th Five-Year Plan was significantly shaped by a mid-term evaluation of

10197-502: Was also in sharp contrast to the rapid industrialization seen in the First Five-Year Plan. The Third Plan was originally due early in 1963, but at that time China's economy was too dislocated, as a result of the failure of the Great Leap Forward and four poor harvests to permit any planned operations. No five-year plan ultimately covered the period 1963–1965. As initially conceived, the Third Five Year Plan emphasized further development in China's already more developed coastal areas and

10300-433: Was gradually reduced in the early 1960s, with some private property ownership and enterprise again being allowed. The communes continued until being dismantled in the early 1980s under Deng Xiaoping. This communist party –related article is a stub . You can help Misplaced Pages by expanding it . Five-Year Plans of China The Five-Year Plans ( Chinese : 五年计划 ; pinyin : Wǔnián Jìhuà ) are

10403-419: Was introduced to finance by David B. Hertz in 1964, although it has only recently become common: today analysts are even able to run simulations in spreadsheet based DCF models, typically using a risk-analysis add-in, such as @Risk or Crystal Ball . Here, the cash flow components that are (heavily) impacted by uncertainty are simulated, mathematically reflecting their "random characteristics". In contrast to

10506-452: Was taken for or contributed to the communes and people were not allowed to cook their own food and instead ate in communal dining halls. The Great Leap Forward, begun in 1958, was a campaign to rapidly modernize by using China's vast labor resources in agricultural and industrial projects. The Leap instead resulted in economic destruction and tens of millions of famine deaths, and had been mostly abandoned by early 1962. Membership in communes

10609-555: Was the first publicly listed company ever to pay regular dividends . The VOC was also the first recorded joint-stock company to get a fixed capital stock . Public markets for investment securities developed in the Dutch Republic during the 17th century. By the early 1800s, London acted as a center of corporate finance for companies around the world, which innovated new forms of lending and investment; see City of London § Economy . The twentieth century brought

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