Contains lecture notes based on the lectures on 2014-2015.
“Chapter 1, 2 and 3” > Fundamentals of Corporate Finance
Finance = The art and science of managing wealth;
Financial Management = Those activities that create or preserve the economic value of the assets of an individual, small business, or corporation.
The areas focused on in Finance are; Corporate finance (focus), investments, financial institutions and markets and international finance.
What is corporate finance?
Investment = What long-term investments will you make?
Timing: cash outflow today can create cash inflow in the future
Financing = Where will you get long-term financing for long-term projects (investments)?
Timing: cash inflow today and cash outflow in the future to meet obligations
Liquidity = How to manage everyday activities
Timing: Balance of cash inflows and outflows in the short term.
> Uncertainty for all cases = Risk involved. Key question; What is a sufficient return? Riskier investments mostly mean a higher return.
Responsibilities of the financial manager are investment decisions, financing decisions, short-term financial planning, oversee accounting and audit function in firm and ensuring the financial welfare of the firm.
Refer to the organizational chart in Slide 7 of the Lecture Slides to be found on Nestor; On top there is the Chief Financial Officer, with a Treasurer and a Controller under him, splitting up the Financial Management Decisions, which are;
Capital budgeting; Planning and managing long-term investments. Take Apple taking over Beatz for example. All done to increase the economic value and wealth of the firm
Capital structure; The mixture of a long-term debt and equity maintained by a firm. How much to borrow is a question to ask, but also what are the least expensive sources of funds for the firm?
Working capital management; The management of a firm’s short-term assets and liabilities. How much cash and inventory should be kept? And should we sell on credit?
Corporate structure
Disadvantages;
Personal tax rate on profits
Obligations of the business are the sole responsibility of the owner, and personal assets may be necessary to pay obligations (personal and business assets are commingled)
Business entity limited to life of owner
Can have limited access to outside funding for the business
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