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Chapter 1 textbook P2-19

Chapter 1 textbook P2-19 - O ng urces Financial manager...

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Corporate organization - finance function: O) ng urces Resources internal ger) -- external nd-Raising Manager ager er – report to the firm’s treasurer anager nager e Maximization – Financial decisions and share price: Financial manager Financial Decision alternative or action Increase share price? Reject Accept Return? Risk? Yes No Chapter 1 – the role and environment of managerial finance 1.1 Finance and Business The field of finance is broad and dynamic Finance can be defined as the art and science of managing money . Finance is concerned with the process, institutions, markets, and instruments involved in the transfer of money among individuals, businesses, and governments . Major areas and opportunities in finance : (the career opportunities --- convenience) 1. Financial services: the area of finance concerned with the design and delivery of advice and financial products to individuals, business, and government (The areas of banking and related institutions, personal financial planning, investments, real estate, and insurance) 2. Managerial finance: concerned with the duties of the financial manager in the business firm. (Financial tasks as planning, extending credit to customers, evaluating proposed large expenditures, and raising money to fund the firm’s operations) Financial manager --- developing and implementing corporate strategies --- growing the firm and improving its competitive position (many top executives from the finance area) Legal forms of business organization: 1. Sole proprietorship (75%) 2. Partnership (10%) 3. Corporation(15%) – legal entity Strengths 1. owner has all profits & costs 2. low organizational costs 3. proprietor’s personal tax return 4. independence 5. secrecy 6. ease of dissolution 1. more finds 2. borrowing power 3. more available brain power and managerial skill 4. taxed – partner’s personal tax return 5. articles of partnership 1. owners – limited liability 2. large size – stock 3. ownership (stock) – transferable 4. long life 5. professional managers 6. retirement plans 7. better access to financing 8. board of directors Weaknesses 1. unlimited liability 2. limited fund 3. jack-of-all-trades 4. difficult give employees long-run career opportunities 5. lacks continuity when proprietor dies 1. unlimited liability – all partners 2. difficult to liquidate or transfer partnership 3. be dissolved when a partner dies 1. Higher taxes – income tax & dividend tax (max 15%) 2. more expensive 3. subject Gov. regulation 4. lack secrecy - stockholders
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