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Ch01%20Show[1] - CHAPTER1...

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Click to edit Master subtitle style 11 CHAPTER 1 Overview of Financial Management and the Financial  Environment
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22 Topics in Chapter n Forms of business organization n Objective of the firm: Maximize wealth n Determinants of fundamental value n Financial securities, markets and  institutions
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33 Why is corporate finance  important to all managers? n Corporate finance provides the skills  managers need to: n Identify and select the corporate strategies  and individual projects that add value to  their firm. n Forecast the funding requirements of their  company, and devise strategies for 
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44 Business Organization from  Start-up to a Major Corporation n Sole proprietorship n Partnership n Corporation (More . .)
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55 Starting as a Proprietorship n Advantages: n Ease of formation n Subject to few regulations n No corporate income taxes n Disadvantages: n Limited life n Unlimited liability
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66 Starting as or Growing into a  Partnership n A partnership has roughly the same  advantages and disadvantages as a  sole proprietorship.
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77 Becoming a Corporation n A corporation is a legal entity separate  from its owners and managers. n File papers of incorporation with state. n Charter n Bylaws
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88 Advantages and Disadvantages  of a Corporation n Advantages: n Unlimited life n Easy transfer of ownership n Limited liability n Ease of raising capital n Disadvantages: n Double taxation
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99 Becoming a Public  Corporation and Growing  n Initial Public Offering (IPO) of Stock n Raises cash n Allows founders and pre-IPO investors to  “harvest” some of their wealth n Subsequent issues of debt and equity
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1010 Agency Problems and  Corporate Governance n Agency problem: managers may act in their  own interests and not on behalf of owners  (stockholders) n Corporate governance  is the set of rules that  control a company’s behavior towards its  directors, managers, employees,  shareholders, creditors, customers,  competitors, and community. 
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1111 What should be management’s  primary objective? n The primary objective should be  shareholder wealth maximization, which  translates to maximizing the  fundamental stock price. n Should firms behave ethically?  YES! n Do firms have any responsibilities to  society at large? YES!  Shareholders are 
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1212 Is maximizing stock price good for  society, employees, and customers? n Employment growth is higher in firms  that try to maximize stock price. On  average, employment goes up in:  n firms that make managers into owners  (such as LBO firms) n firms that were owned by the government  but that have been sold to private investors (Continued)
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1313 Is maximizing stock price good?  (Continued) n Consumer welfare is higher in capitalist 
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This note was uploaded on 03/06/2011 for the course FIN 101 taught by Professor Swartz during the Spring '11 term at Rutgers.

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Ch01%20Show[1] - CHAPTER1...

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