Fundamentals of Corporate Finance
Chapter 1 The Firm The Financial Manager Corporate Finance & Fundamentals of Corporate Finance Fourth Edition Chapter 1 The Firm & The Financial Manager Irwin/McGraw Hill Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 1 1 1 2 1 1
Topics Covered Organizing a Business The Role of The Financial Manager Who Is The Financial Manager? Goals of the Corporation CEO Pay 2 2 2 2 2 3
Organizing A Business Sole Proprietorships Partnerships Corporations
Characteristics of Business Organizations Sole Prop. Partner. Corp. Ownership Manager Partners Shareholders Manager-Owner Seperation Same Usually Seperated Owner’s Liability Unlimited Limited Taxing Personal Income Personal Income &Corporate Tax
Personal tax on profits Corporate Structure Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships Limited Liability Corporate tax on profits + Personal tax on dividends Corporations
Assets Real Assets:Used to produce goods & services Tangible: Machinery, factory, offices Intangible:Trade mark,patents,technical expertise Financial Assets: Claims to the income generated by real assets. Also called securities.
The Role of Financial Manager Firm’s Operations Real Assets Investors Financial Manager Money Flows
Basic Problems Capital Budgeting Decision What real should the Firm acquire? Financing Decision How should cash be raised to finance real investments?
Goals of The Financial Management Shareholders desire wealth maximization Do managers maximize shareholder wealth? Max VALUE = f ( I, F ) Max VALUE = f ( I, F, D ) 17
The Role of Financial Markets Stock Markets Bond Markets Foreign Exchange etc. Firm’s Operations Real Assets Investors Financial Manager Financial Intermediaries Mutual Funds Pension Funds Financial Institutions Banks Insurance Companies Money Flows