IntroNotes Spring 2011 - Goals for the course 1) Make you...

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Goals for the course 1) Make you masters of the concept of time value of money and its applications 2) Introduce the primary concepts and tools used in investments and corporate finance and try to tie them into your discipline as much as possible 3) Develop a foundation (and a passion if possible) for lifetime financial success 4) Enable you to “de-mystify” finance for others Finance = the application of a series of financial and economic principles to maximize wealth Big Issues in Finance 1) Wealth Maximization 2) Risk-Return Tradeoff and Quantitative Measures of Risk and Return 3) Security analysis and valuation measures 4) Agency issues and corporate governance Some introductory terms and concepts Stock – fractional ownership of a corporation; equity Bond – debt issue; bondholders are creditors; interest is an expense Capital asset = a long term asset like land or machinery; could be intangible too Financial asset = a claim on assets or cash flows (stocks, bonds) Capital = funds to be used for long term investing Money = funds to be used for short term investing or expenses Residual cash flows = funds left after operating expenses, creditors, and taxes have been paid = can be paid to owners as dividends or reinvested in the company Two types of cash flows to investors = capital gains and income 1) capital gains = change in value of a long term investment 2) income = short term cash flow from an investment Chapter 1 of your textbook is helpful with these notes Financial Manager’s Decisions Capital budgeting: the process of planning and managing a firm’s long-term investments (projects) Capital structure: the mix of debt and equity used to finance the capital budgeting projects Working capital management: Managing short term receipts and payments Net working capital (NWC) = current assets – current liabilities Three forms of business organizations
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IntroNotes Spring 2011 - Goals for the course 1) Make you...

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