Chap01notes - Chapter 01 Introduction to Financial...

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8/21/2014 1 1 Chapter 01 Introduction to Financial Management ** Need TVM computation ability next lecture! What is Finance? Finance applies specific value to things owned services used decisions made Financial management organization’s approach to valuation 1-2 Stocks, bonds Mortgage payments Companies Projects Business decisions
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8/21/2014 2 Economic Participants Two dimensions Participants with “extra” investment money Participants with economically viable ideas 1-3 Type 1 Participants Do not lend or spend in business context No direct role in financial markets Indirect role: to provide labor and consume products Economic Participants 1-4
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8/21/2014 3 Type 4 Participants Use financial tools evaluate own businesses choose highest-potential ideas Are self-funded, so no need for financial markets Economic Participants 1-5 Types 2 and 3 Participants use financial institutions and financial markets for mutually beneficial exchange Type 2: makes temporary loans to Type 3 Type 3: typically consists of companies engaging in R & D Economic Participants 1-6
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