Unformatted text preview: Welcome to BAUD 306 Welcome 1 VALUE VALUE
• How do we determine VALUE? How VALUE • How can we create additional VALUE? How VALUE • How is VALUE shared? How VALUE • Can we cooperate in making VALUE? Can VALUE
3 Agenda Agenda Financial Management Decisions and Financial Financial Managers Financial Forms of Business Organization and their Forms Financial Implications Financial The Financial Goal of the Firm The Agency Problem and Control of the The Corporation Corporation Financial Markets and the Corporation
4 • Capital budgeting • Capital structure Financial Management Financial Decisions Decisions – What long-term investments or projects should the What business take on? business – Where will we get the financing to pay for the Where investment? investment? – How should we pay for our assets? Should we use debt How or equity? or • Working capital management
– How do we manage the day-to-day finances of the How firm? firm?
5 Financial Manager
• Financial managers try to answer some or all of Financial these questions these • The top financial manager within a firm is usually The the Chief Financial Officer (CFO) the
– Treasurer – oversees cash management, credit Treasurer management, capital expenditures, and financial planning planning – Controller – oversees taxes, cost accounting, financial Controller accounting and data processing accounting 6 Forms of Business Organization
• Three major forms in the United States
– Sole proprietorship – Partnership
• General • Limited – Corporation
• S-Corp • Limited liability company 7 Sole Proprietorship
– Easiest to start – Least regulated – Single owner keeps all Single the profits the – Taxed once as Taxed personal income personal • Disadvantages
– Limited to life of owner – Equity capital limited to Equity owner’s personal wealth wealth – Unlimited liability – Difficult to sell Difficult ownership interest ownership 8 Partnership
– – – – Two or more owners More capital available Relatively easy to start Income taxed once as Income personal income personal • Disadvantages
– Unlimited liability
• • General partnership Limited partnership – Partnership dissolves Partnership when one partner dies or wishes to sell or – Difficult to transfer Difficult ownership ownership 9 Corporation
– Limited liability – Unlimited life – Separation of Separation ownership and management management – Transfer of ownership Transfer is easy is – Easier to raise capital • Disadvantages
– Separation of Separation ownership and management management – Double taxation Double (income taxed at the corporate rate and then dividends taxed at the personal rate) personal 10 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 Does everything to maximize owner wealth? everything 11 11 The Agency Problem
• Agency relationship
– Principal hires an agent to represent his/her interests – Stockholders (principals) hire managers (agents) to run Stockholders the company the • Agency problem
– Conflict of interest between principal and agent • Agency costs 13 13 Managing Managers
• Managerial compensation
– Incentives can be used to align management and Incentives stockholder interests stockholder – The incentives need to be structured carefully to make The sure that they achieve their goal sure • Corporate control
– The threat of a takeover may result in better The management management • Other stakeholders 14 14 Cash Flows to the Firm 15 15 Financial Markets
• Primary vs. secondary markets • Dealer vs. auction markets • Listed vs. over-the-counter securities
– NYSE – NASDAQ 16 16 Quick Quiz
• What are the three types of financial management decisions What and what questions are they designed to answer? and • 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 What corporation? corporation? • What is the difference between a primary market and a What secondary market? secondary 17 17 ...
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This note was uploaded on 03/13/2009 for the course BUAD FINANCE taught by Professor Selvili during the Fall '08 term at USC.
- Fall '08