Maximize the wealth of shareholders by making

This preview shows page 2 - 3 out of 5 pages.

Maximize the wealth of shareholders by making decisions that have long-term positive effects. 3. Ethics in corporate finance a. Sarbanes-Oxley Act (SOX) i. Holds corporate advisors who have access to or influence on company decisions legally accountable for any instances of misconduct ii. Safeguards the interests of shareholders by providing greater protection against accounting fraud and financial misconduct. Five Basic Principles of Finance 1. Money has a time value a. Dollar received today is worth more than a dollar received in the future 2. There is a risk-return tradeoff a. We won’t take on additional risk unless we expect to be compensated with additional return. b. Expected return increases as risks increases 3. Cash flows are the source of value a. Cash flow is the amount of cash that can actually be taken out of the business over this same interval. (actual money that can be spent) b. Cash flows drive the value of a business c. Accounting profit is NOT equal to cash flows 4. Market prices reflect information a. Investors buy and sell their investment based on new information. b. Earnings report can raise or bring down prices. 5. Individuals respond to incentives a. Conflict of interest between the firm’s managers and its stockholder is called the agency problems. Chapter 2 Basic Structure of the U.S. Financial Markets Financial market is any place where money and credit are exchanged Within financial markets, there are three principal sets of players that interact Borrowers Those who need money to finance their purchases Includes businesses that need money to finance their investments
Image of page 2

Subscribe to view the full document.

Savers (investors) Those who have money to invest. People who save money for variety of reasons Financial institutions (intermediaries) Help bring borrowers and savers together
Image of page 3
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern