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Lecture_01_Student - Lecture 1: Overview of Financial...

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Lecture 1: Overview of Financial Management ( BD Chapter 1)
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Topics in Chapter Basic Goal of Financial Management Agency relationships: Stockholders versus managers Stockholders versus creditors Transparency in financial reporting The Cost of Money
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What should be management’s primary objective? The primary objective should be shareholder wealth maximization, which translates into maximizing stock price. Should firms behave ethically? YES! Enron and Arthur Andersen Do firms have any responsibilities to society at large?
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Stock Price Maximization and Social Welfare Stock Price Maximization also benefits society. Owners of stock are society Customer benefit: efficient, low cost business that produce high-quality products. Employee benefits: increase employment, salary and stock compensation.
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Three aspects of cash flows that affect company value Amount of expected cash flows Bigger is better Timing of the cash flow stream Sooner is better Risk of the cash flows Less risk is better Show these aspects in a ‘scientific’ way?
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A firm’s value is the sum of all the future expected free cash flows when converted into today’s dollars: Value = FCF 1 FCF 2 FCF (1 + WACC) 1 (1 + WACC) (1 + WACC) 2 + +…
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An agency relationship arises whenever one or more individuals, called principals hires another individual or organization, called an agent , to perform some service delegates decision-making authority to that agent. Separation of ownership and management!
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This note was uploaded on 06/06/2011 for the course FINA 4200 taught by Professor Wu during the Spring '08 term at UGA.

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Lecture_01_Student - Lecture 1: Overview of Financial...

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