1. 1 - 0 Fundamentals of Financial Management Ninth Edition Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. ISBN 0-03-031478-X

2. 1 - 1 Career opportunities Issues of the new millennium Forms of business organization Goals of the corporation Agency relationships CHAPTER 1 An Overview of Financial Management

3. 1 - 2 Money and capital markets Investments Financial management Career Opportunities in Finance

4. 1 - 3 Use of computers and electronic transfers of information The globalization of business Financial Management Issues of the new millennium

5. 1 - 4 3M51.726.9 Chase Manhattan27.826.6 Coca-Cola62.364.6 Exxon80.165.1 General Electric23.931.1 General Motors30.868.0 IBM56.868.9 McDonald’s60.871.7 Merck24.927.4 Walt Disney16.718.9 Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations, 1998 Percentage of Revenue Originated Net Income Company OverseasGenerated Overseas

6. 1 - 5 Forecasting and planning Investment and financing decisions Coordination and control Transactions in the financial markets Managing risk Responsibilities of the Financial Staff

7. 1 - 6 Sole proprietorship Partnership Corporation Alternative Forms of Business Organization

8. 1 - 7 Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital Sole Proprietorship

9. 1 - 8 A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Partnership

10. 1 - 9 Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Double taxation Cost of set-up and report filing Corporation

11. 1 - 10 The primary goal is shareholder wealth maximization, which translates to maximizing stock price. Do firms have any responsibilities to society at large? Is stock price maximization good or bad for society? Should firms behave ethically? Goals of the Corporation

12. 1 - 11 An agency relationship exists whenever a principal hires an agent to act on their behalf. Within a corporation, agency relationships exist between: Shareholders and managers Shareholders and creditors Agency Relationships

13. 1 - 12 Managers are naturally inclined to act in their own best interests. But the following factors affect managerial behavior: Managerial compensation plans Direct intervention by shareholders The threat of firing The threat of takeover Shareholders versus Managers

14. 1 - 13 Shareholders (through managers) could take actions to maximize stock price that are detrimental to creditors. In the long run, such actions will raise the cost of debt and ultimately lower stock price. Shareholders versus Creditors

15. 1 - 14 Projected cash flows to shareholders Timing of the cash flow stream Riskiness of the cash flows Factors that Affect Stock Price

16. 1 - 15 Factors that Affect the Level and Riskiness of Cash Flows Decisions made by financial managers: Investment decisions Financing decisions (the relative use of debt financing) Dividend policy decisions The external environment