BUAD 306 Chapter 1 Introduction to Corporate finance

BUAD 306 Chapter 1 Introduction to Corporate finance - BUAD...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
BUAD 306 Chapter 1 Introduction to Corporate Finance 1. Corporate Finance and the Financial Manager What is Corporate Finance? - Starting a business requires asking three questions: o 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? o Where will you get the long- term financing to pay for your investment? Will you bring in other owners or will you borrow the money? o How will you manage your everyday financial activities such as collecting from customers and paying suppliers? The Financial Manager - In a large corporation, the owners (stockholders) are usually not directly involved in making business decisions but employs managers to represents the owners’ interest and make decision on their behalf - Financial management function associated with vice president of finance or CFO and coordinates activities of the treasurer and the controller o Controller’s office handles cost and financial accounting, tax payments, and management information systems o Treasurer’s office is responsible for managing the firm’s cash and credit, its financial planning, and its capital expenditures Activities that are related to the three questions Financial Management Decisions - Capital Budgeting - process of planning and managing a firm’s long- term investments o Identify investment opportunities that are worth more to the firm than they cost to acquire o Concerned with how much cash they expect to receive (size), when they expect to receive it (timing), and how likely they are to receive it (risk) - Capital Structure - specific mixture of long- term debt and equity the firm uses to finance its operations o What percentage of the firm’s cash flow goes to creditors and what percentage goes to shareholders
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
- Working Capital Management - firm’s short term assets, such as inventory, and its short term liabilities, such as money owned to suppliers o Ensure firm has sufficient resources to continue its operations and avoid costly interruptions 2. Forms of Business Organization Sole Proprietorship - business owned by one person - Simple to start up so there are more proprietorships than any other type of business - Owner keeps all the profit - Owner has unlimited liability for business debt ( creditors can look beyond business assets to the proprietor’s personal assets for payment) - No distinction between personal and business income, so all business income is taxed as person income - Life of a sole proprietorship is limited to the owner’s life span and the amount of equity that can be raised is limited to the amount of the proprietor’s personal wealth - Difficult to transfer ownership because it requires sale of entire business Partnership - similar to a proprietorship except that there are two or more owners - General partnership- all the partners share in gains or losses and all have unlimited liability for all partnership debt - Limited partnership- one or more general partners will run the business and have
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

BUAD 306 Chapter 1 Introduction to Corporate finance - BUAD...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online