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Unformatted text preview: Chp. 1 The Goal of Financial Management Profit Maximization The Goal of Financial Management in a Corporation The goal of financial management is to maximize th Chp. 6 • Which bonds will have the higher yield, all else equal? – Secured debt versus a debenture – Subordinated debenture versus senior debt – A bond with a sinking fund versus one without – A callable bond versus a non-callable bond Chp. 7 Proxy voting Classes of stock Preemptive right – first shot at new stock issue to maintain proportional ownership if desired Chp. 8 Average Accounting Return – Average net income / average book value – Note that the average book value depends on how the asset is depreciated. Chp. 9 Common Types of Cash Flows • Sunk costs – costs that have accrued in the past • Opportunity costs – costs of lost options • Side effects – Positive side effects – benefits to other projects – Negative side effects – costs to other projects Chp. 10 What Makes Markets Efficient? • There are many investors out there doing research – As new information comes to market, this information is analyzed and trades are made based on this information – Therefore, prices should reflect all available public information • If investors stop researching stocks, then the market will not be efficient Chp. 12 pure play approach The pure play approach can be used to find the cost of capital for a division Chp. 13 Capital Structure Theory Bankruptcy Costs Direct costs – Legal and administrative costs – Ultimately cause bondholders to incur additional losses – Disincentive to debt financing Financial distress – Significant problems in meeting debt obligations – Most firms that experience financial distre...
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