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    Financial Management: Chapter 1 - An Introduction To

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    Cherry Blasoom
    This chapter introduces key concepts in financial management. It discusses the goal of the firm as maximizing shareholder wealth through maximizing firm value and stock price. It also outlines different legal forms of business including sole proprietorships, partnerships, limited liability companies, and corporations. The chapter then examines the corporation and financial markets, describing how corporations interact with investors, governments, and primary and secondary markets through activities like initial public offerings and seasoned new issues. It concludes by listing 10 important financial management axioms.

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    Financial Management: Chapter 1 - An Introduction To

    Uploaded by

    Cherry Blasoom
    26 views29 pages
    This chapter introduces key concepts in financial management. It discusses the goal of the firm as maximizing shareholder wealth through maximizing firm value and stock price. It also outlines different legal forms of business including sole proprietorships, partnerships, limited liability companies, and corporations. The chapter then examines the corporation and financial markets, describing how corporations interact with investors, governments, and primary and secondary markets through activities like initial public offerings and seasoned new issues. It concludes by listing 10 important financial management axioms.

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    This chapter introduces key concepts in financial management. It discusses the goal of the firm as maximizing shareholder wealth through maximizing firm value and stock price. It also outlines different legal forms of business including sole proprietorships, partnerships, limited liability companies, and corporations. The chapter then examines the corporation and financial markets, describing how corporations interact with investors, governments, and primary and secondary markets through activities like initial public offerings and seasoned new issues. It concludes by listing 10 important financial management axioms.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    26 views29 pages

    Financial Management: Chapter 1 - An Introduction To

    Uploaded by

    Cherry Blasoom
    This chapter introduces key concepts in financial management. It discusses the goal of the firm as maximizing shareholder wealth through maximizing firm value and stock price. It also outlines different legal forms of business including sole proprietorships, partnerships, limited liability companies, and corporations. The chapter then examines the corporation and financial markets, describing how corporations interact with investors, governments, and primary and secondary markets through activities like initial public offerings and seasoned new issues. It concludes by listing 10 important financial management axioms.

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    of 29

    Chapter 1 - An Introduction to

    Financial Management

     2005, Pearson Prentice Hall


    Goal of the Firm

    1) Profit Maximization?
    this goal ignores:
    a) TIMING of Returns
    (Time Value of Money - Ch. 5)
    b) UNCERTAINTY of Returns
    (Risk - Ch. 6)
    Goal of the Firm

    2) Shareholder Wealth
    Maximization?
    this is the same as:
    a) Maximizing Firm Value
    b) Maximizing Stock Price
    Legal Forms of Business

    1) Sole Proprietorship
     A business owned by a single individual.
     Owner maintains title to the firm’s assets.
     Owner has unlimited liability.

    2) Partnership
     Similar to a sole proprietorship, except
    that there are two or more owners.
    Legal Forms of Business

    2a) General Partnership


     All partners have unlimited liability.

    2b) Limited Partnership


     Consists of one or more general partners,
    who have unlimited liability.
     One or more limited partners (investors)
    whose liability is limited to the amount of
    their investment in the business.
    Legal Forms of Business

    2c) Limited Liability Company


    (LLC)
     Cross between a partnership and a
    corporation.
     Owners have limited liability, but the
    firm runs and is taxed like a
    partnership.
    Legal Forms of Business

    3) Corporation
     A business entity that legally functions
    separate and apart from its owners.
     Owners’ liability is limited to the amount of
    their investment in the firm.
     Owners hold common stock certificates,
    and ownership can be transferred by
    selling the certificates.
    The Corporation and
    Financial Markets
    The Corporation and
    Financial Markets

    Corporation
    The Corporation and
    Financial Markets

    Corporation Investors
    The Corporation and
    Financial Markets

    Corporation Investors

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Secondary
    markets

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Secondary
    markets

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Secondary
    markets

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Secondary
    markets
    Cash flow

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities

    Secondary
    markets
    Cash flow

    tax

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities
    reinvest
    Secondary
    markets
    Cash flow

    tax

    Government
    The Corporation and
    Financial Markets

    Corporation cash Investors


    securities
    reinvest
    Secondary
    markets
    dividends,
    Cash flow
    etc.

    tax

    Government
    The Corporation and
    Financial Markets
     Primary Market
    The Corporation and
    Financial Markets
     Primary Market
     Market in which new issues of a
    security are sold to initial
    buyers.
    The Corporation and
    Financial Markets
     Primary Market
     Market in which new issues of a
    security are sold to initial
    buyers.
     Secondary Market
    The Corporation and
    Financial Markets
     Primary Market
     Market in which new issues of a
    security are sold to initial
    buyers.
     Secondary Market
     Market in which previously
    issued securities are traded.
    The Corporation and
    Financial Markets
     Initial Public Offering (IPO)
    The Corporation and
    Financial Markets
     Initial Public Offering (IPO)
     The first time the firm’s stock is
    sold to the general public.
    The Corporation and
    Financial Markets
     Initial Public Offering (IPO)
     The first time the firm’s stock is
    sold to the general public.
     Seasoned New Issue
    The Corporation and
    Financial Markets
     Initial Public Offering (IPO)
     The first time the firm’s stock is
    sold to the general public.
     Seasoned New Issue
     A new stock offering by a firm
    that already has stock that is
    traded in the secondary market.
    Financial Management Axioms
    1) Risk - return trade-off.
    2) Time value of money.
    3) Cash - not profits - is king.
    4) Incremental cash flows count.
    5) The curse of competitive markets.
    6) Efficient capital markets.
    7) The agency problem.
    8) Taxes bias business decisions.
    9) All risk is not equal.
    10) Ethical dilemmas are everywhere in
    finance.

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