Chapter 1 - Introduction Flashcards
(21 cards)
Corporate finance has ___ main areas of concern….
a. Capital budgeting
b. Capital structure
c. Working capital management
Capital budgeting
What long-term investments should the firm take?
Capital structure
Where will the firm get the long-term financing to pay for its investments?
Also what mixture of debt and equity should it use used to fund operations?
Working capital management
How should the firm manage its every day financial activities?
Goal of financial management in a for-profit business
To make decisions that increase the value of the stock or the value of the equity (more general)
The corporate form of organization is superior to other forms when it comes to ——— and__________, but it has the significant disadvantage of__________
- Raising money
- Transferring ownership interests
- Double taxation
The possibility of conflicts between stockholders and management in a large corporation is called…
Agency problems
The advantages of corporate form are enhanced by the existence of…
Financial markets
Financial management is the most important goal, which is…
Maximizing the value of the stock
The most important and recurring question to ask is…
How does the decision under consideration affect the value of the stock?
Who owns a corporation?
..
Describe the process whereby the owners control the firms management.
…
Agency problems. What is the main reason that an agency relationship exists in the corporate form of organization?
What kinds of problems can arise?
….
Non-profit form goals. If you were a financial manager, what kinds of calls would be appropriate for a not for profit business?
…
Goal of the firm. Evaluate the following statement… Managers should not focus on the current stock value because doing so would lead to an over emphasis on short-term profits at the expense of long-term profits.
…
Ethics and firm goals. Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior?
(Customer and employee safety, the environment, and the general good of society)
…
Agency problems. Suppose your own stock in a company the current price per share is $25 another company has just announced that wants to buy your company and will pay $35 per share to a car all the outstanding stop. Your company’s management immediately begins fighting off this hostile bed. Is management acting in the shareholders best interest? Why or why not?
…
Agency problems and corporate ownership. Do you think agency problems are likely to be more or less severe enjoy them in the United States?
….
Agency problems and corporate ownership. What are the implications of the trend for mutual funds and pension funds to become dominant owners of stock in the US? What are the implications of this trend for agency problems in corporate control?
…
Executive compensation. Our top managers in the US being paid too high?
…
Goal of financial management. Why is the goal of financial management to maximize current value of company’s stock? Not the future value?
…
