Beruflich Dokumente
Kultur Dokumente
Career Opportunities Issues of the New Millennium Forms of Businesses Goals of the Corporation Agency Relationships
1-1
Managing risk
1-2
Money and capital markets - deals with securities markets and financial institutions Investments - focuses on the decisions made by investors Financial management - business finance (decisions w/in the firms)
1-3
1-4
1-5
Percentage of Revenue and Net Income from Overseas Operations for 10 WellKnown Corporations, 2001
Company
Coca-Cola Exxon Mobil General Electric General Motors IBM JP Morgan Chase & Co. McDonalds Merck 3M Sears, Roebuck
1-6
1-7
Advantages
Ease of formation Subject to few regulations No corporate income taxes Difficult to raise capital Unlimited liability Limited life
1-8
Disadvantages
Corporation
Advantages
Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Double taxation Cost of set-up and report filing
1-9
Disadvantages
The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price.
Do firms have any responsibilities to society at large? Is stock price maximization good or bad for society? Should firms behave ethically?
1-10
No, despite a generally high correlation amongst stock price, EPS, and cash flow. Current stock price relies upon current earnings, as well as future earnings and cash flow. Some actions may cause an increase in earnings, yet cause the stock price to decrease (and vice versa).
1-11
Agency relationships
An agency relationship exists whenever a principal hires an agent to act on their behalf.
Managers are naturally inclined to act in their own best interests. But the following factors affect managerial behavior:
Managerial compensation plans Direct intervention by shareholders The threat of firing The threat of takeover
1-13
Shareholders (through managers) could take actions to maximize stock price that are detrimental to creditors.
In the long run, such actions will raise the cost of debt and ultimately lower stock price.
1-14
1-15
To estimate an assets value, one estimates the cash flow for each period t (CFt), the life of the asset (n), and the appropriate discount rate (k) Throughout the course, we discuss how to estimate the inputs and how financial management is used to improve them and thus maximize a firms value. 1-16
Investment decisions Financing decisions (the relative use of debt financing) Dividend policy decisions
1-17