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Ch01 Power Point

Ch01 Power Point - CHAPTER1 OverviewofFinancial...

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1 CHAPTER 1 Overview of Financial  Management and the Financial  Environment
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2 Topics in Chapter Forms of business organization Objective of the firm: Maximize wealth Determinants of fundamental value Financial securities, markets and  institutions
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3 Why is corporate finance  important to all managers? Corporate finance provides the skills  managers need to: Identify and select the corporate strategies  and individual projects that add value to  their firm. Forecast the funding requirements of their  company, and devise strategies for  acquiring those funds.
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4 Business Organization from  Start-up to a Major Corporation Sole proprietorship Partnership Corporation (More . .)
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5 Starting as a Proprietorship Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital to support growth
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6 Starting as or Growing into a  Partnership A partnership has roughly the same  advantages and disadvantages as a  sole proprietorship.
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7 Becoming a Corporation A corporation is a legal entity separate  from its owners and managers. File papers of incorporation with state. Charter Bylaws
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8 Advantages and Disadvantages  of a Corporation Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Double taxation Cost of set-up and report filing
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9 Becoming a Public  Corporation and Growing  Afterwards Initial Public Offering (IPO) of Stock Raises cash Allows founders and pre-IPO investors to  “harvest” some of their wealth Subsequent issues of debt and equity
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10 Agency Problems and  Corporate Governance Agency problem: managers may act in their  own interests and not on behalf of owners  (stockholders) Corporate governance  is the set of rules that  control a company’s behavior towards its  directors, managers, employees,  shareholders, creditors, customers,  competitors, and community.  Corporate governance can help control  agency problems.
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11 What should be management’s  primary objective? The primary objective should be  shareholder wealth maximization, which  translates to maximizing the  fundamental stock price. Should firms behave ethically?  YES! Do firms have any responsibilities to  society at large? YES!  Shareholders are  also members of society.
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12 Is maximizing stock price good for  society, employees, and customers?
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