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Ch 1. Basic Concepts
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- 1Companies invest in ______, which generate ________ .real assets
income - 2How do companies finance their investments? (3 ways)1. borrowing
2. retaining and reinvesting cash flow
3. selling additional shares of stock to the corporation’s shareholders. - 3The corporation’s financial manager faces two broad financial decisions - what are they?Investment Decision: First, what investments should the corporation make?
Financing Decision: Second, how should it pay for those investments? - 4Name 3 ways that shareholders may differ1. wealth
2. risk tolerance
3. investment horizon. - 5When do financial managers add value?Financial managers add value whenever the corporation can earn a higher return than shareholders can earn for
themselves. - 6Name the 5 key themes that occur throughout the Finance Textbook1. Corporate finance is all about maximizing value.
2. The opportunity cost of capital sets the standard for investment decisions.
3. A safe dollar is worth more than a risky dollar.
4. Smart investment decisions create more value than smart financing decisions.
5. Good governance matters. - 7Investment decisions are also known as (name 2), because...capital budgeting or capital expenditure (CAPEX) decisions, because most large corporations prepare an annual capital budget listing the major projects approved for investment.
- 8The choice between debt and equity financing is calledthe capital structure decision
- 9Corporations raise equity financing in two ways. Name these 2 ways1. they can issue new shares of stock.
2. the corporation can take the cash flow generated by its existing assets and reinvest the cash in new assets. - 10What is the "payout decision"?The decision to pay dividends or repurchase shares is called the payout decision.
- 11Shareholders of a corporation have: _________ __________. What does this mean?limited liability. which means that they cannot be held personally responsible for the corporation’s debts.
- 12What are the implications of separation of ownership and control ?1. Corporations can, in principle, live forever
2. Can open the door for managers and directors to act in their own interests rather than in the stockholders’ inter- est.
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- Professional (Chapter 1 - Introduction & Basic Concepts) Finance Fichas sobre Ch 1. Basic Concepts, creado por Georgia Tan el 03/05/2015.
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