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    Financial Management and Policy: Powerpoint Presentation

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    Laura Atria Pakpahan

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    Financial Management and Policy: Powerpoint Presentation

    Uploaded by

    Laura Atria Pakpahan
    39 views18 pages

    Original Title

    Chptr 01

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    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Download as ppt, pdf, or txt
    39 views18 pages

    Financial Management and Policy: Powerpoint Presentation

    Uploaded by

    Laura Atria Pakpahan

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 18

    PowerPoint Presentation

    Financial Management And


    Policy
    Twelfth Edition
    by
    James C. Van Horne
    Stanford University

    Prepared by
    Richard Gendreau
    Bemidji State University
    ®2002 Prentice Hall Publishing
    Chapter 1
    Goals and Functions
    of
    Finance

    ®2002 Prentice Hall Publishing


    2
    Financial Goal

    Maximize Shareholder
    Wealth

    ®2002 Prentice Hall Publishing


    3
    Objective of a Company
    • Create value for its shareholders
    – Market price of common stock (C/S)
    – Function of finance
    • Investment
    • Financing
    • Dividend/share repurchase

    ®2002 Prentice Hall Publishing


    4
    Value Creation
    • Niche in an attractive industry

    • Imperfections in the financial markets

    ®2002 Prentice Hall Publishing


    5
    Maximization of EPS
    • Does not consider
    – Timing
    – Duration
    – Risk or uncertainty
    – Dividends
    • Usually is not the same as maximizing
    market price per share
    ®2002 Prentice Hall Publishing
    6
    Agency Problems
    • Management/stockholders

    • Creditors/equityholders

    ®2002 Prentice Hall Publishing


    7
    Dealing With Agency Problems
    • Incentives • Monitoring
    – Stock options – Bonding
    – Bonuses – Reviewing
    – Perquisites – Auditing
    – Limiting
    management
    decisions

    ®2002 Prentice Hall Publishing


    8
    Principle of Maximization of
    Shareholder Wealth
    • Rational guide for running a business

    • Efficient allocation of resources in society

    • Objective in making financial decisions

    ®2002 Prentice Hall Publishing


    9
    Allocation of Savings in an
    Economy
    • Occurs on the basis of expected risk and
    return

    • Market value of common stock reflects the


    market’s trade-off between risk and return

    ®2002 Prentice Hall Publishing


    10
    Social Responsibility
    • Protecting consumers
    • Paying fair wages
    • Maintaining fair hiring practices
    • Maintaining safe working conditions
    • Supporting education
    • Involved in environmental issues
    • Impact on stakeholders
    ®2002 Prentice Hall Publishing
    11
    Functions of Finance
    • Investment decisions

    • Financing decisions

    • Dividend/share repurchase decision

    ®2002 Prentice Hall Publishing


    12
    New Investment Decision
    • Most important of three functions
    • Allocation/reallocation of capital
    • Determines
    – The total amount of assets
    – Composition of assets
    – Business-risk complexion of the firm
    • Appropriate acceptance criterion (or
    required rate of return)

    ®2002 Prentice Hall Publishing


    13
    Existing Investment Decision
    • Efficient management of current assets

    • Proper level of liquidity

    • Allocating capital to fixed assets

    ®2002 Prentice Hall Publishing


    14
    External Investment
    Opportunities
    • Mergers and acquisitions

    • Domestic and international

    • Globalization of finance

    ®2002 Prentice Hall Publishing


    15
    Financing Decision
    • Determining the best financing mix
    – Optimal capital structure
    – Maximize market price per share
    • Variation in capital structure can impact firm value
    • Interface with capital markets
    – Ever-changing environment
    – Manage financial risk with hedging devices
    • Corporate restructuring
    – New financing sources
    – Existing financing sources

    ®2002 Prentice Hall Publishing


    16
    Dividend/Share Repurchase
    Decision
    • Amount of cash to distribute to stockholders
    • Dividend policy
    – % of earnings paid
    – Stability of dividends
    – Stock dividend
    – Splits
    • Share repurchase
    • Determines the amount of earnings retained
    • Financial signals to the market

    ®2002 Prentice Hall Publishing


    17
    Making Optimal Decisions
    • Interrelated decisions

    • Effect on the value of the firm

    • Financial analysis

    ®2002 Prentice Hall Publishing


    18

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