FM11 Ch 01 Show

FM11 Ch 01 Show - 1-1 CHAPTER 1 Overview of Financial...

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1 - 1 CHAPTER 1 Overview of Financial Management and the Financial Environment Financial management Forms of business organization Objective of the firm: Maximize wealth Determinants of stock pricing The financial environment Financial instruments, markets and institutions Interest rates and yield curves
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1 - 2 Why is corporate finance important to all managers? Corporate finance provides the skills managers need to: Identify and select the corporate strategies and individual projects that add value to their firm. Forecast the funding requirements of their company, and devise strategies for acquiring those funds.
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1 - 3 Sole proprietorship Partnership Corporation What are some forms of business organization a company might have as it evolves from a start-up to a major corporation?
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1 - 4 Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital to support growth Starting as a Sole Proprietorship
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1 - 5 A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Starting as or Growing into a Partnership
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1 - 6 Becoming a Corporation A corporation is a legal entity separate from its owners and managers. File papers of incorporation with state. Charter Bylaws
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1 - 7 Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Double taxation Cost of set-up and report filing Advantages and Disadvantages of a Corporation
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1 - 8 Becoming a Public Corporation and Growing Afterwards Initial Public Offering (IPO) of Stock Raises cash Allows founders and pre-IPO investors to “harvest” some of their wealth Subsequent issues of debt and equity Agency problem: managers may act in their own interests and not on behalf of owners (stockholders)
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1 - 9 The primary objective should be shareholder wealth maximization, which translates to maximizing stock price. Should firms behave ethically? YES! Do firms have any responsibilities to society at large? YES! Shareholders are also members of society. What should management’s primary objective be?
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1 - 10 Is maximizing stock price good for society, employees, and customers? Employment growth is higher in firms that try to maximize stock price. On average, employment goes up in: firms that make managers into owners (such as LBO firms) firms that were owned by the government but that have been sold to private investors
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1 - 11 Consumer welfare is higher in capitalist free market economies than in communist or socialist economies. Fortune
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FM11 Ch 01 Show - 1-1 CHAPTER 1 Overview of Financial...

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