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    Introduction To Corporate Finance

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    vinniiee

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    Introduction To Corporate Finance

    Uploaded by

    vinniiee
    8 views17 pages

    Original Title

    chap01 (2)

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    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    8 views17 pages

    Introduction To Corporate Finance

    Uploaded by

    vinniiee

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 17

    Chapter 1

    •Introduction To Corporate
    Finance

    McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
    Key Concepts and Skills
    • Know the basic types of financial
    management decisions and the role of the
    financial manager
    • Know the financial implications of the
    different forms of business organization
    • Know the goal of financial management
    • Understand the conflicts of interest that can
    arise between owners and managers
    • Understand the various types of financial
    markets
    1-2
    Chapter Outline

    • Corporate Finance and the Financial


    Manager
    • Forms of Business Organization
    • The Goal of Financial Management
    • The Agency Problem and Control of the
    Corporation
    • Financial Markets and the Corporation

    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?

    1-4
    Financial Manager

    • Financial managers try to answer some or


    all of these 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

    1-5
    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?

    1-6
    Forms of Business Organization

    • Three major forms in the United States


    • Sole proprietorship
    • Partnership
    • General
    • Limited
    • Corporation
    • S-Corp
    • Limited liability company

    1-7
    Sole Proprietorship

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

    1-8
    Partnership

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

    1-9
    Corporation

    • Advantages • Disadvantages
    • Limited liability • Separation of
    • Unlimited life ownership and
    • Separation of management
    ownership and • Double taxation
    management (income taxed at the
    • Transfer of ownership corporate rate and then
    dividends taxed at the
    is easy
    personal rate)
    • Easier to raise capital

    1-10
    Goal Of Financial Management

    • What should be the goal of a corporation?


    • Maximize profit?
    • Minimize costs?
    • Maximize market share?
    • Maximize the current value of the company’s
    stock?
    • Does this mean we should do anything and
    everything to maximize owner wealth?

    1-11
    The Agency Problem

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

    1-12
    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

    1-13
    Work the Web Example

    • The Internet provides a wealth of


    information about individual companies
    • One excellent site is finance.yahoo.com
    • Click on the web surfer to go to the site,
    choose a company and see what
    information you can find!

    1-14
    Financial Markets

    • Cash flows to the firm


    • Primary vs. secondary markets
    • Dealer vs. auction markets
    • Listed vs. over-the-counter securities
    • NYSE
    • NASDAQ

    1-15
    Quick Quiz
    • What are the three types of financial management
    decisions and what questions are they designed to
    answer?
    • What are the three major forms of business
    organization?
    • What is the goal of financial management?
    • What are agency problems and why do they exist
    within a corporation?
    • What is the difference between a primary market
    and a secondary market?
    1-16
    Chapter 1
    •End of Chapter

    McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.

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