Ch. 1 - Chapter 1 Introduction and Overview 1.1 1.2 1.3 1.4...

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1 Chapter 1 I I n n t t r r o o d d u u c c t t i i o o n n a a n n d d O O v v e e r r v v i i e e w w 1.1 The Mysterious World of Finance 1.2 Finance as a Field of Study 1.3 Forms of Business Organization 1.4 The Goal of Corporate Financial Management 1.5 The Relationship Between Accounting and Finance 1.6 Value and the Importance of Cash 1.7 Careers in Finance 1.8 Purpose and Organization of Text After studying Chapter 1, you should be able to: Understand why sound financial management is vital to the survival of a business. Identify the three main subject areas in the field of finance. Describe different forms of business organization. Explain why the goal of a financial manager should be to maximize the wealth of the firm’s shareholders and why this particular goal is preferred over other goals. Describe the basic difference between Financial Management and Accounting. Understand the importance of cash and the basic relationship between cash flow and value.
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2 1.1 The Mysterious World of Finance Most successful business enterprises have the following in common: a product (or service) that people want or need, an efficient method of production and/or delivery, effective marketing, quality managers, a trained work force, and a vision and strategy for future growth. The managers of successful firms also usually possess a thorough understanding of the principles of financial management. In fact, the managers of most of the best corporations in the U.S. devote at least as much time to the finances of their firms as they do to operations. This is probably why so many current top managers and CEOs majored in finance in college or graduate school and/or were promoted out of their (or some other) company’s finance department. They know that whereas even the most excellent financial management cannot save a firm with a bad product, poor financial management can cause a firm that efficiently produces, markets and delivers a high demand product to fail. The following story illustrates the importance of financial management to a firm. When at 7 years of age, Bennie Feldhaus completely disassembled and then rebuilt his father’s riding lawnmower, doubling the mowers top speed and power while reducing its gas consumption by 30 percent, his parents knew that Bennie was destined to be something special. By 10, Bennie had rebuilt the engines in both the family automobiles, achieving similar results. By 14, Bennie had memorized the engine specifications of every car made in the U.S. over the past 5 years. By 16, he knew the specifications of all foreign made automobiles as well. Bennie, however, disliked school. To him school was boring and a waste of time. He wanted to be working on automobiles. So, after he finally graduated from high school
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This note was uploaded on 02/01/2011 for the course FI 3300 taught by Professor Co. during the Spring '08 term at Georgia State.

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Ch. 1 - Chapter 1 Introduction and Overview 1.1 1.2 1.3 1.4...

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