ch1 - 1 CC1 ower Point Presentation designed by Dr Sylvia C...

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Unformatted text preview: 1 CC1 ower Point Presentation designed by Dr. Sylvia C. Hudgins for Finance 323 at ODU What is Finance? The Four Basic Areas of Finance • Corporate Finance • Investments • Financial Markets & Institutions • International Finance 2 What is the focus of corporate finance? 3 Basic Issues: What long-term investments should a firm take on? The process of planning and managing a firm’s long-term investments is called: What is the focus of corporate finance? 4 Basic Issues: Where will you get the long-term financing to pay for your investment? The mixture of debt and equity maintained by a firm is called: What is the focus of corporate finance? 5 Basic Issues: How will you manage your everyday financial activities such as collecting from customers and paying suppliers? The process of managing a firms short-term assets and liabilities is called: Who focuses on financial issues within a 6 business/firm? Legal Forms of Business Organization • Sole Proprietorship • Partnership General Partnership Limited Partnership • Corporation • Limited Liability Company (LLC)& Limited Liability Partnership (LLP) Limited 7 Legal Forms of Business Organization: 8 (1) Sole Proprietorship:business owned by a single individual Advantages Easily Established Minimal Organizational Costs Keep all Generated Profits Disadvantages Unlimited Liability Losses absorbed by owner Limited Capital Limited Life 9 (2) Partnership: An association of two or more individuals General Partnership each partner is fully responsible for liabilities Limited Partnership one or more partners have limited liability limited partners do not participate in the management limited partners are merely investors one general partner must exist (2a) General Partnership: Advantages Minimal Organizational Requirements Negligible Government Regulations Disadvantages All Partners have Unlimited Liability Losses absorbed by owners Difficulty of transferring ownership Limited Life-Terminates at Death or Decision of One Partner 10 (3) Corporation: Business form existing separate and apart for its owners Advantages Liability Limited to Investment Ease in Raising Capital Continues after death of owner(s) Disadvantages Tax Treatment of earnings (Double Taxation) Time and Cost of Incorporation Separation of ownership and management S corporation Vs. C corporation 11 What is the classical goal of the firm? 12 To Maximize Shareholder Wealth Price of common stock Value of the firm Important Trends ----- More accurate and dependable financial ----statements (Corporate Governance Concept) statements ---- Globalization ---- Improving Information technology (IT) The ability to use technology to do things they were not been able to do before were 13 Business Ethics 14 ---- Business ethics can be defend as a company’s ---attitude and conduct toward its employees, customers, community, and stockholder. stockholder. ---- What companies are doing? ---- Consequences of unethical behavior ---- What should be done to deal with unethical ---behavior behavior 15 Conflict between Managers and Stockholders (Agency Problem) Will managers work in the shareholders’ Will best interests? best Managerial compensation They are given the opportunities to buy stocks for barging prices Better performers within the firm will tend to get promoted The threat of a takeover may result in better management Proxy rights: the authority to vote for some one else 16 Conflicts between Stockholders and Bondholders What is the role of financial markets in corporate finance? Primary vs Secondary 17 The Basics of Chapter 1 What are the three types of financial What management decisions and what questions are they designed to answer? are What are the major forms of business What organization? organization? What is the goal of financial management? What are agency problems and why do they What exist within a corporation? exist What is the difference between a primary What market and a secondary market? market 18 ...
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