Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd
Upload
27 views

Introduction To Corporate Finance: Michele Vincenti, PH.D, MBA, M.A. (HOS), CIM, Fcsi, Sti, CFP, CMC, C.I.M., F.Cim

This document discusses different topics in corporate finance including forms of business organization, financial management decisions, goals of financial management, agency problems, and the role of financial markets. It covers sole proprietorships, partnerships, corporations, capital budgeting, capital structure, working capital management, maximizing shareholder wealth, and the relationship between principals and agents.

Uploaded by

MOHAMED JALEEL MOHAMED SIDDEEK
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
27 views

Introduction To Corporate Finance: Michele Vincenti, PH.D, MBA, M.A. (HOS), CIM, Fcsi, Sti, CFP, CMC, C.I.M., F.Cim

This document discusses different topics in corporate finance including forms of business organization, financial management decisions, goals of financial management, agency problems, and the role of financial markets. It covers sole proprietorships, partnerships, corporations, capital budgeting, capital structure, working capital management, maximizing shareholder wealth, and the relationship between principals and agents.

Uploaded by

MOHAMED JALEEL MOHAMED SIDDEEK
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 19

Chapter

One

Introduction To Corporate
Finance

Michele Vincenti, Ph.D, MBA, M.A. (HOS), CIM,


FCSI, STI, CFP, CMC, C.I.M., F.CIM

© 2003 The McGraw-Hill Companies, Inc. All rights reserved.


1.2 Chapter Outline

• Corporate Finance and the Financial Manager


• Forms of Business Organization
• The Goal of Financial Management
• The Agency Problem and Control of the
Corporation
• Financial Markets and the Corporation
• Financial Institutions
• Trends in Financial Markets and Financial
Management
1.3 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 will we manage the everyday financial
activities of the firm?
1.4 Financial Manager

• Financial managers try to answer some or all of


these questions
• The top financial manager within a firm is
usually the Chief Financial Officer (CFO)
– Treasurer – oversees cash management, capital
expenditures and financial planning
– Controller – oversees taxes, cost accounting,
financial accounting and data processing
1.5 Financial Management Decisions
• Capital budgeting
– What long-term investments or projects should the
business take on?
• Capital structure
– How should we pay for our assets?
– Should we use debt or equity?
• Working capital management
– How do we manage the day-to-day finances of the
firm?
1.6 Forms of Business Organization

• Three major forms in Canada


– Sole proprietorship
– Partnership
• General
• Limited
– Corporation
• In other countries, corporations are also called joint stock
companies, public limited companies and limited liability
companies
1.7 Sole Proprietorship
• Advantages • Disadvantages
– Easiest to start – Unlimited liability
– Least regulated – Limited to life of owner
– Single owner keeps all – Equity capital limited to
the profits owner’s personal wealth
– Taxed once as personal – Difficult to sell
income ownership interest
1.8 Partnership
• Advantages • Disadvantages
– Two or more owners – Unlimited liability
– More capital available • General partnership
– • Limited partnership
Relatively easy to start
– Income taxed once as – Partnership dissolves
personal income when one partner dies or
wishes to sell
– Difficult to transfer
ownership
1.9 Corporation
• Advantages • Disadvantages
– Limited liability – Separation of ownership
– Unlimited life and management
– Separation of ownership – Double taxation (income
and management is taxed at the corporate
– Transfer of ownership is rate and then dividends
easy are taxed at the personal
rate)
– Easier to raise capital
1.11 Goal Of Financial Management

• What should be the goal of a corporation?


– Maximize profit?
– Minimize costs?
– Maximize market share?
– Maximize the current value of the company’s
stock?
• Does this mean we should do anything and
everything to maximize owner wealth?
1.12 Primary Goal of Financial Management

• Three equivalent goals of financial


management:
– Maximize shareholder wealth
– Maximize share price
– Maximize firm value
1.13 The Agency Problem

• Agency relationship
– Principal hires an agent to represent their interests
– Stockholders (principals) hire managers (agents) to
run the company
• Agency problem
– Conflicts of interest can exist between the principal
and the agent
• Agency costs
– Direct agency costs
– Indirect agency costs
1.14 Managing Managers
• Managerial compensation
– Incentives can be used to align management and
stockholder interests
– The incentives need to be structured carefully to
make sure that they achieve their goal
• Corporate control
– The threat of a takeover may result in better
management
• Conflicts with other stakeholders
1.16 What is the role of financial markets in corporate finance?

• Cash flows to and from the firm


• Money vs. capital markets
• Primary vs. secondary markets

• How do financial markets benefit society?


1.17 Cash Flows to and from the Firm
1.19 Trends in Financial Markets and Management

• Financial Engineering
• Derivative Securities
• Advances in Technology – i.e. E-business
• Deregulation
• Corporate Governance Reform
1.19

• No Class next Friday


1.20 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 why do they
exist within a corporation?
• What is the difference between a primary
market and a secondary market?
1.21 Summary 1.9

• You should know:


– The advantages and disadvantages between a sole
proprietorship, partnership and corporation
– The primary goal of the firm
– What an agency relationship and cost are
– The role of financial markets

You might also like