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The average American uses 35 paper clips per year Almost all paper clips used by Americans are made in the USA Why? – There is over a 100% tariff on paper clips Interestingly plastic-covered clips are not covered by the tariff and they are manufactured largely in China 1
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The savings of the Steen method over the block method would be nearly seven minutes. This savings could be as much as $110,000,000 annually per carrier—well over a billion dollars for the industry— and likely could be more given the parallel nature of the boarding process. 2
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The Role and Objective of Financial Management
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What is the number one goal of any financial manager? 6
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Will a particular investment be successful? Where will the funds come from to finance the investment? Does the firm have adequate cash or access to cash to meet its daily operating needs? 7
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Considers the timing and risk of the benefits from stock ownership Determines that a good decision increases the price of the firm’s common stock (C/S) Is an impersonal objective Is concerned for social responsibility Why? 8
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9 Shareholder Wealth Maximization (SWM) NOT NOT Profit maximization! Primary objective of the financial manager Primary objective of financialmanagement
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Are stockholders, managers, and creditors always in agreement regarding company decisions? Why? 10
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According to Adam Smith we are all greedy, but it is this greed that when properly incentivized can bring about a blanket of altruism. What is the problem with the above statement? Conflicts between stockholders and managers. Conflicts between stockholders and creditors. 11
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What conflicts can exist? How can we mitigate these conflicts? (flip) Tie bonus/options to EVA Options to buy stock or actual shares of stock to reward long-term performance American Funds Shareholder intervention Any shareholder who owns $1,000 of a company’s stock for one year can sponsor proposals that must be voted on at the annual stockholders’ meeting. Pension fund managers must proxy vote as a fiduciary for their stake holders 12
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What conflicts can exist? Creditors have a claim on the firm’s earnings stream, and they have a claim on its assets in the event of bankruptcy, however; stockholders have control of the firms managers. 13
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Sole proprietorship Partnership Corporation 14
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Owned by one person Advantage: Easy formation Disadvantage: Unlimited liability Disadvantage: Difficulty raising funds Represent 75 percent of all businesses Account for less than 6 percent of total business revenues 15
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Owned by two or more persons About 7 percent of US businesses, 5 percent of business revenues Classified as general (unlimited liab) or limited General Partnerships represent 90% of partnerships Advantage: Limited partners’ liability is limited to what is specified in the agreement. Disadvantage: Partnership dissolves when a general partner dies Disadvantage: Unlimited liability for general partners 16
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Limited liability Permanency Ability to raise capital Has a board of directors Owners are stockholders Double taxation X-inefficiency Flexibility Legal entity Easy marketability of shares of ownership Higher agency costs 17 Advantages Disadvantages
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S – Corp Must have < 75 employees Allows limited liability Avoids double taxation LLC Same advantages of an S-Corp with fewer restrictions of ownership LLP LLC’s for companies who issue professional advice 18
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Board of directors deals with broad policy The board sets 3 to 5 year strategic plans Management makes most of the decisions Management makes day-to-day decisions following the strategic plan 20
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Dividends Asset Voting for board members, major policy Preemptive rights on new shares 21
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Financial Executive Institute Institute of Charted Financial Analysis Financial Management Association Institute of Management Accounting 22
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VP of Finance Director Investor Relations Assistant Treasurer Tax Manager Financial Analyst Account Executive Security Broker Financial Planner Banking 23 Check out http://www.careerpath.com/
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