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1、Chapter 1Introduction to Corporate Finance,Copyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.,McGraw-Hill/Irwin,Key Concepts and Skills,Know the basic types of financial management decisions and the role of the financial managerKnow the financial implications of the different forms
2、 of business organizationKnow the goal of financial managementUnderstand the conflicts of interest that can arise between owners and managersUnderstand the various types of financial markets,Chapter Outline,Corporate Finance and the Financial ManagerForms of Business OrganizationThe Goal of Financia
3、l ManagementThe Agency Problem and Control of the CorporationFinancial Markets and the Corporation,Corporate Finance,Some important questions that are answered using finance:What long-term investments should the firm take on?Where will we get the long-term financing to pay for the investment?How wil
4、l we manage the everyday financial activities of the firm?,5,Balance Sheet Model of the Firm,6,The Capital Budgeting Decision,Current Assets,Fixed Assets1 Tangible 2Intangible,Shareholders Equity,Current Liabilities,Long-Term Debt,What long-term investments should the firm choose?,7,The Capital Stru
5、cture Decision,How should the firm raise funds for the selected investments?,Current Assets,Fixed Assets1 Tangible 2 Intangible,Shareholders Equity,Current Liabilities,Long-Term Debt,8,Short-Term Asset Management,How should short-term assets be managed and financed?,Net Working Capital,Shareholders
6、Equity,Current Liabilities,Long-Term Debt,Current Assets,Fixed Assets1 Tangible 2 Intangible,A.Deciding when to repay a long-term debtB.Determining how much inventory to keep on handC.Determining how much debt should be borrowed from a particular lenderD.Deciding whether or not to open a new storeE.
7、Determining how much money should be kept in the checking account,Which one of the following is a capital budgeting decision?,1-9,I.accounts payableII.accounts receivableIII.long-term debtIV.inventoryA.I and II onlyB.I and III onlyC.II and IV onlyD.I,II,and IV onlyE.I,III,and IV only,Working capital
8、 management includes decisions concerning which of the following?,1-10,Financial Manager,Financial managers try to answer some or all of these questionsThe top financial manager within a firm is usually the Chief Financial Officer(CFO)Treasurer oversees cash management,credit management,capital expe
9、nditures,and financial planningController oversees taxes,cost accounting,financial accounting and data processing,1-12,Hypothetical Organization Chart,1.The person generally directly responsible for overseeing the tax management,cost accounting,financial accounting,and information system functions i
10、s the:A.chairman of the board.B.director.C.chief executive officer.D.treasurer.E.controller.2.The person generally directly responsible for overseeing the cash and credit functions,financial planning,and capital expenditures is the:,1-13,Which of the following questions are addressed by financial ma
11、nagers?I.How should a product be marketed?II.Should customers be given 30 or 45 days to pay for their credit purchases?III.Should the firm borrow more money?IV.Should the firm acquire new equipment?,Financial Management Decisions,Capital budgetingWhat long-term investments or projects should the bus
12、iness take on?Capital structureHow should we pay for our assets?Should we use debt or equity?Working capital managementHow do we manage the day-to-day finances of the firm?,Forms of Business Organization,Three major forms in the United StatesSole ProprietorshipPartnershipGeneralLimitedCorporationLim
13、ited Liability Company,Sole Proprietorship,AdvantagesEasiest to startLeast regulatedSingle owner keeps all the profitsTaxed once as personal income,DisadvantagesLimited to life of ownerEquity capital limited to owners personal wealthUnlimited liabilityDifficult to sell ownership interest,Partnership
14、,AdvantagesTwo or more ownersMore capital availableRelatively easy to startIncome taxed once as personal income,DisadvantagesUnlimited liabilityGeneral partnershipLimited partnershipPartnership dissolves when one partner dies or wishes to sellDifficult to transfer ownership,Corporation,AdvantagesLim
15、ited liabilityUnlimited lifeSeparation of ownership and managementTransfer of ownership is easyEasier to raise capital,DisadvantagesDouble taxation(income taxed at the corporate rate and then dividends taxed at the personal rate),I.limited life of the firmII.personal liability for firm debtIII.great
16、er ability to raise capital than a sole proprietorshipIV.lack of ability to transfer partnership interestA.I and II onlyB.III and IV onlyC.II and III onlyD.I,II,and IV onlyE.I,III,and IV only,Which of the following are disadvantages of a partnership?,1-20,I.limited liability for firm debtII.double t
17、axationIII.ability to raise capitalIV.unlimited firm lifeA.I and II onlyB.III and IV onlyC.I,II,and III onlyD.II,III,and IV onlyE.I,III,and IV only,Which of the following are advantages of the corporate form of business ownership?,1-21,Goal of Financial Management,What should be the goal of a corpor
18、ation?Maximize profit?Minimize costs?Maximize market share?Maximize the current value of the companys stock?Does this mean we should do anything and everything to maximize owner wealth?,The Agency Problem,Agency relationshipPrincipal hires an agent to represent his/her interestsStockholders(principa
19、ls)hire managers(agents)to run the companyAgency problemConflict of interest between principal and agentManagement goals and agency costs,A.Increasing current costs in order to increase the market value of the stockholders equityB.Agreeing to expand the company at the expense of stockholders valueC.
20、Refusing to lower selling prices if doing so will reduce the net profitsD.Agreeing to pay bonuses based on the book value of the company stockE.Refusing to borrow money when doing so will create losses for the firm,Which one of the following actions by a financial manager creates an agency problem?,
21、1-24,Managing Managers,Managerial compensationIncentives can be used to align management and stockholder interestsThe incentives need to be structured carefully to make sure that they achieve their goalCorporate controlThe threat of a takeover may result in better managementOther stakeholders,Work t
22、he Web Example,The Internet provides a wealth of information about individual companiesOne excellent site is Click on the web surfer to go to the site,choose a company and see what information you can find!,Financial Markets,Cash flows to and from the firmPrimary vs.secondary marketsDealer vs.auctio
23、n marketsListed vs.over-the-counter securitiesNYSENASDAQ,Quick Quiz,What are the three types of financial management decisions and what questions are they designed to answer?What are the three major forms of business organization?What is the goal of financial management?What are agency problems and
24、why do they exist within a corporation?What is the difference between a primary market and a secondary market?,Ethics Issues,Is it ethical for tobacco companies to sell a product that is known to be addictive and a danger to the health of the user?Is it relevant that the product is legal?Should boards of directors consider only price when faced with a buyout offer?Is it ethical to concentrate only on shareholder wealth,or should stakeholders as a whole be considered?Should firms be penalized for attempting to improve returns by stifling competition(e.g.,Microsoft)?,End of Chapter,
