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Chapter 001 - Chapter 1 Introduction to Corporate Finance I...

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Chapter 1 Introduction to Corporate Finance I. Corporate Finance and the Financial Manager A. Corporate Finance: Three main questions 1. What long-term investments should you take on? That is, what lines of business will you be in and what sorts of buildings, machinery, and equipment will you need? 2. Where will you get the long-term financing to pay for your investment? Will you bring other owners or will you borrow the money? 3. How will you manage your everyday financial activities such as collecting from customers and paying suppliers? B. The Financial Manager 1. In large corporation, the shareholders/owners do not involve the corporate financial on day-to-day basis. Instead, the financial manager is elected for answering the three questions. C. Financial Management Decisions 1. Capital Budgeting . The process of planning and managing a firm’s long- term investments is call capital budgeting . The financial managers have to concern not only how much cash they expect to receive, but also with when they expect to receive it and how likely they are to receive . 2. Capital Structure . A firm’s capital structure is the specific mixture of long-term debt and equity the firm uses to finance its operation. 3. Working Capital Management . The term working capital refers to a firm’s short-term assets , such as inventory, and capital is a day-to-day activity that ensures that the firm has sufficient resources to continue the firm’s receipt and disbursement of cash. II. Forms of Business Organization A. Sole Proprietorship . A sole proprietorship is a business owned by one person . 1. Advantages - The least regulated form of business. Easy to start!
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- The owner of the proprietorship keeps all the profits , and the profits are taxed as personal income .
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