fina 2303 chapter 1

Taylor Ngai
Note by Taylor Ngai, updated more than 1 year ago
Taylor Ngai
Created by Taylor Ngai over 2 years ago
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corporate finance and the financial manager
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Page 1

why study finance? in business occasion, we face problems like - how to raise money for firm? - should the firm produce or outsource production? - issue new stock or borrow money? value creation: how different business related disciplines benefit from finance? - marketing: marketing financial products - accounting: dual accounting and finance function - management: strategic thinking, profitability - personal finance: budgeting, planning, cash flow issues

Page 2

the financial manager => make financial decision for stakeholders three main tasks: - make investment decisions (capital budgeting) weigh costs and benefits each investment  decide which of them qualify as good use of stockholders' money if it adds value to owners - make financing decisions (capital structure) decide if raise money from selling more shares of stocks (equity) or borrowing money (debt) - manage cash flow from operating activities (working capital management) must ensure theres enough cash on hand to meet its obligations goals of financial managers: - maximize wealth of the owners and shareholders - increase value of shares

Page 3

financial manager's place in corporation corporate management team: - broad of directors (group of ppl elected by shareholders who have decision making authority) - CEO (instituting rules and policies set by broad of the directors) ethics and incentives in corporations: - agency problems (when managers put self-interest before of those shareholders  

Page 4

stock market - private corporation has a limited number of owners, no organized market for shares - public corporation has unlimited number of owners, share trade on an organized market (stock market) physical stock markets: - auction market (NYSE) - market makers (specialists) - bid ask spread (bid price, ask price, transaction cost) over the counter stock markets: - dealer markets NASDAQ (electronic) bonds fx - listing standards (requirements a company must meet to be eligible in trading on stock market (NYSE's listing standards are stringent than those of NASDAQ) other stock market: - bond market - foreign exchange market - commodities market - derivative securities

Page 5

financial institutions - entities provide financial services (taking deposits, managing investment, brokering financial transactions, making loans) - roles of FI transfer funds from savers to borrowers move funds through time spread out risk bearing - financial cycle savers and investors invest and save their money  through loans and stocks money flows to FI FI launch projects and new ideas wages, profits and interests have money flows back to savers and investors

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