Book Review

Book Review - Finance: Book Review Chapters 1, 2, 3, 4, 5,...

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Finance: Book Review Chapters 1, 2, 3, 4, 5, 6, 7, 9, 10, 11 Chapter 1 I. Investment and Financing Decisions a. The Investment (Capital Budgeting) Decision i. The investment decision starts with the identification of investment opportunities (AKA capital investment projects) ii. Investment decision is also called capital budgeting decision iii. Scope of the investment decision includes both tangible and intangible assets iv. If a project’s value is greater than its required investment, then the project is attractive financially v. Financial manager’s goal is to invest in projects that are worth more than they cost b. The Financing Decision i. Second main responsibility: to raise the money that a firm needs for its investments and operations—called the financing decision ii. Options: invite investors to put up cash in exchange for a share of future profits, or promise to pay back investors’ cash plus a fixed rate of interest 1. First case is equity financing 2. Second case is debt financing iii. Choice between debt and equity financing is called capital structure decision iv. Short-term financing decisions are how to raise cash to meet a short-term need, while short-term investment decisions are how to invest spare cash for brief periods c. How money flows from investors to the firm and back to investors i. Cash is raised from investors ii. Cash is used to pay for the real assets (investment projects) needed for the firm’s operations 1. Real assets are used to produce a firm’s products and services (both tangible and intangible) 2. Financial assets are what the firm issues to investors to finance its investment in real assets (stocks, bonds, etc) 3. Shares of stock and other financial assets that can be purchased and traded by investors are called securities iii. If the firm does well, operations generate enough cash inflow to more than repay the initial investment iv. Cash is either reinvested or returned to investors who furnished money in the first place II. What Is a Corporation? a. A corporation is a distinct, permanent legal entity i. Public means that the corporation’s shares are traded in a securities market and are available for purchase by any investor
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ii. Private means that shares are closely held by small groups of managers and investors—you can’t purchase shares of these companies except by negotiation with existing share owners. b. Corporation attributes i. Must have articles of incorporation, which set out the purpose of the business and how it is to be financed, managed, and governed ii. Corporation has limited liability 1. It is distinct from its owners 2. Owners cannot be held personally responsible for the corporation’s debts iii. Stockholders elect a board of directors to run the corporation 1. Separation of ownership and management is a distinctive feature of corporations III. Who Is the Financial Manager? a.
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This note was uploaded on 05/07/2008 for the course H ADM 222 taught by Professor Qma during the Spring '07 term at Cornell.

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Book Review - Finance: Book Review Chapters 1, 2, 3, 4, 5,...

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