Chapter 1: Financial Manager + The Firm

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Financial Manager- responsible for making decisions in best interests of the firm's owners

usually meaning to maximize owners' stock

Assumption: most people invest in businesses because they want to increase wealth

Stakeholder- someone other than an owner who has a claim on the cash flows of the firm

Managers, employees, suppliers, creditors, government

Interests differ from owners

Productive Assets- long-term tangible and intangible assets a firm uses to generate cash flows

Three Fundamental Decisions

1. Capital budgeting decisions: Identifying the productive assets the firm should buy.

2. Financing decisions: Determining how the firm should finance or pay for assets.

3. Working capital management decisions: Determining how day-to-day financial matters should be managed so that the firm can pay its bills, and how surplus cash should be invested.

Agency costs- arising from conflicts of interests between principal and an agent (firm's owner and managers)

Information asymmetry- one party in a business transaction has info unavailable to other parties