1. Fundamentals of Corporate Finance

2. 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

3. 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

4. Organizing A Business
Sole Proprietorships
Partnerships
Corporations

5. 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

6. 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

7. 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.

8. The Role of Financial Manager
Firm’s
Operations
Real Assets
Investors
Financial
Manager
Money Flows

9. Basic Problems Capital Budgeting Decision
What real should the Firm acquire?
Financing Decision
How should cash be raised to finance real investments?

10. 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

11. 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