Investment decision/Capital budgeting decision-
decision to invest in tangible (plants)
or intangible assets (research, advertising, marketing, acquisition of new products)
form and amount of financing of a firms investment.
mix of long-term debt and equity financing.
(1) equity investors- investors put
up cash in exchange for a share of future profits (2) debt investors- promise to pay back
the investors cash plus interest.
assets used to produce goods and services,
machinery, factories, offices, technical knowledge, trademarks, patents, undeveloped land.
financial claims to the income generated by the firms real assets, shares
of stock, bank loan, IOU.
manager owns manages business,
unlimited financial liability personal tax on profits.
- business organization as
a separate legal entity owned by stockholders. Board of directors manage and hire top
managers and monitor their performance. Taxed separately- corporations pay tax on their
profits and shareholders are taxed on dividends.
Continuity- outlasts individual owners,
ownership easily transferred.
traded in a securities market and are available for
purchase by an investor.
corporations shares are closely held by small groups of
managers and investors, cant purchases shares except by negotiating with existing share
owners of a corporation (stockholders) are no personally liable
for the corporations obligations, this benefits the stockholders.
anyone responsible for a significant corporate investment or financing decision.
- responsible for financing, cash management, and relationships with banks and
other financial institutions.
- responsible for budgeting, accounting, and taxes.
Chief financial officer
- oversees the treasurer and controller and sets overall financial
strategy- financial policy and corporate planning.
Shareholders want manager to
maximize market value
. NOT Maximize profits- by cutting back but do not add value
NOT cutting dividends- increase future profits
investing the low ROI . NOT accounting-
profit can calculated in different ways.
managers acting as agents for
stockholders may act in their own interests rather than maximizing value, corporate perks
growth that doesn’t add value risk avoidance entrenchment.
anyone with a
financial interest in the firm.
-compensation plans: incentive schemes, Board of
directors: replace managers and the board itself. Takeovers: poorly performing companies
by another firm. Specialist monitoring- keep an eagle eye on progress. Legal requirements-