Chapter1nt[1] - Introducing Financial Management Chapter 1...

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1 Introducing Financial Management Chapter 1
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2 Chapter 1 Learning Goals LG1: Connect finance sub-area descriptions with corporate financial tasks LG2: Show why and how finance is at the heart of sound business decisions LG3: pply finance in your personal life LG4: Compare and contrast the advantages and disadvantages of the three most common business organizational forms in the United States LG5: Differentiate between financial managers’ appropriate and inappropriate goals LG6: dentify the firm’ primary agency relationship and discuss why gency relationships can create conflicts LG7: ncorporate ethics into financial management LG8: Describe the complex and necessary relationships among firms,
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3 What is Finance? The study of valuation Stocks, bonds Mortgage payments Companies Projects Business decisions Financial Management focuses on valuing things from the perspective of a company rather than an individual, but the same concepts apply to both
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4 Economic Participants We can segment participants along two dimensions: Those with “extra” money available to invest Those with economically viable ideas No extra money Extra money No economically viable business ideas Type 1: No money and no ideas Type 2: Money, but no ideas Economically viable business ideas Type 3: No money, but ideas Type 4: Both money and ideas
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5 We can set aside Types 1 and 4 Type 1 people play no direct role in financial markets as either lenders or users of capital, but they play an indirect role by providing labor and consuming products Type 4 people are self-funded, so they don’t need financial markets. They do use the financial tools discussed below, however. Types 2 and 3 use financial institutions and financial markets to engage in mutually beneficial exchange Type 2 people lend money to Type 3 people to invest in good business ideas.
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6 Type 2 participants are usually individual investors Type 3 participants are usually companies which may have R&D departments dedicated to developing innovative ideas Investors lend capital to businesses, who then expand, hire more employees, and create a promising future. The investor has increased wealth for the future as well.
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7 Where Does the Cash Go? Successful companies repay investors
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Chapter1nt[1] - Introducing Financial Management Chapter 1...

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