Ch 1+2 - Class 1-sept 9 Chapter 1 2 Saturday 8:24 PM KNOW...

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KNOW ALL THIS STUFF - BASICS FOR FINANCE!!! WHEN STUDYING FOR TEST, LOOK AT THIS LINK: - hill.com/sites/0070916594/student_view0/formula_sheet.html PLUS AT THE END OF EACH CHAPTER, THERE'S YOUTUBE LINKS TO WATCH AND PRACTISE QUESTIONS CHAPTER 1 INTRO TO CORPORATE FINANCE Financial Management The goal of financial management in a for-profit business is to make decisions that increase the value of the stock (geographical expansions, automating production, etc) 1. Capital budget - long-term investments (debt vs. equity fund expansion, etc) 2. Capital structure - long-term financing of its investments (controlling inventory levels, collecting from customers, etc) 3. Working capital- managing its everyday financial activities and short-term assets+liabilities 3 Main categories of financial decisions ( CFO - just under CEO) Top financial manager is usually called Chief Financial Officer - cash + credit management, capital expanding, financial planning Treasurer - - taxes, accounting (internal + external),data processing Controller - - - Class 1 -sept 9 Chapter 1+2 Saturday, September 07, 2013 8:24 PM FIN300 Page 1
-unlimited liability by one owner Sole Proprietorship -same as sole...at least 1 partner has to have unlimited liability, but others can agree to be limited ( limited partnership) - general: everyone liable, no matter how much percent they own Partnership -limited liability -basically like a person legally -The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are the reasons why the corporate form is superior when it comes to raising cash -has double taxation (for itself and its investors) Corporation Forms of businesses -It is presumed that financial managers seek to maximize the wealth of current shareholders -maximizes firms's traded share price -maximizes value of firm to investors and society -maximizes remuneration for financial managers (income for them) -under "perfect markets" this goal also: -financial managers and other corporate insiders have info that others do not (assymetric information) -markets are not perfect -benefit themselves at the expense of shareholders -benefit shareholders and expense of other investors -benefit investors at expense of society as a whole (CSR) -therefore, managers can make decisions that: Goal of Financial Management Agency relationship - relationship between management and investors (shareholders) - - unnecessary expenses (travel and entertainment, etc) - monitoring costs (filing expense reimbursement claims) - costs of shareholders monitoring managers to ensure they're doing the right thing - direct agency costs -avoiding risky or expensive projects to avoid being blamed for costly "mistakes" (ie opportunity costs on investments) -empire building - indirect agency costs (EXPAND) 1. managerial compensation -agency problem can be reduce via: The Agency Problem (problems in companies that cause expense, ie interest of investors vs managers) FIN300 Page 2
-incentives (bonuses, stock options)

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