1. Chapter 1 - An Introduction to Financial Management

2. (Time Value of Money - Ch. 5) b) UNCERTAINTY of Returns
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)

3. Goal of the Firm 2) Shareholder Wealth Maximization?
this is the same as:
a) Maximizing Firm Value
b) Maximizing Stock Price

4. 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.

5. 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.

6. 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.

7. 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.

8. The Corporation and Financial Markets

9. The Corporation and Financial Markets

10. The Corporation and Financial Markets
Investors

11. The Corporation and Financial Markets
Government
Corporation
Investors

12. The Corporation and Financial Markets
cash
Government
Corporation
Investors

13. The Corporation and Financial Markets
cash
Government
securities
Corporation
Investors

14. The Corporation and Financial Markets
Government
cash
securities
Corporation
Investors
Secondary
markets

15. The Corporation and Financial Markets
Government
cash
securities
Corporation
Investors
Secondary
markets

16. The Corporation and Financial Markets
Government
cash
securities
Corporation
Investors
Secondary
markets

17. The Corporation and Financial Markets
cash
Investors
Secondary
markets
Government
securities
Cash flow
Corporation

18. The Corporation and Financial Markets
cash
Investors
Secondary
markets
Government
securities
Cash flow
tax
Corporation

19. The Corporation and Financial Markets
cash
Investors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation

20. The Corporation and Financial Markets
cash
Investors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation
dividends,
etc.

21. The Corporation and Financial Markets
Primary Market

22. The Corporation and Financial Markets
Primary Market
Market in which new issues of a security are sold to initial buyers.

23. The Corporation and Financial Markets
Primary Market
Market in which new issues of a security are sold to initial buyers.
Secondary Market

24. 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.

25. The Corporation and Financial Markets
Initial Public Offering (IPO)

26. The Corporation and Financial Markets
Initial Public Offering (IPO)
The first time the firm’s stock is sold to the general public.

27. 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

28. 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.

29. 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.