What is the primary goal of the firm?
To maximize shareholder wealth by increasing stock price.
Why is finance considered ubiquitous?
Because all businesses need cash flow to operate, pay salaries, and invest.
What are the three main decisions in finance?
Capital budgeting, capital structure, and working capital management.
What is capital budgeting?
Deciding which long-term investments a firm should undertake.
What is capital structure?
How a firm raises money to fund investments.
What is working capital management?
Managing short-term assets and liabilities.
What does Principle 1 state?
Cash flow is what matters.
What is incremental cash flow?
Difference in cash flows with vs without a project.
What does Principle 2 state?
Money has a time value.
What is opportunity cost?
The value of the next best alternative forgone.
What does Principle 3 state?
Risk requires a reward.
Why do investors expect higher returns on stocks?
Because stocks involve higher risk.
What does Principle 4 state?
Market prices are generally right.
What is an efficient market?
Prices reflect all available information.
What does Principle 5 state?
Conflicts of interest cause agency problems.
What is an agency problem?
Managers acting against shareholders’ interests.
What is ethical behavior in business?
Doing the right thing based on values.
What is a sole proprietorship?
Business owned by one individual with unlimited liability.
What is a partnership?
Business owned by two or more people.
What is a corporation?
A separate legal entity owned by shareholders.
What is limited liability?
Owners are only liable up to their investment.
What are benefits of corporations?
Limited liability, easy transfer of ownership, easier to raise capital.
What are drawbacks of corporations?
Double taxation, regulation, less secrecy.
What is double taxation?
Corporate profits taxed twice (company + shareholders).
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intro30
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The Financial Markets and Interest Rates33
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The Time Value of Money24
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The Meaning and Measurement of Risk and Return (Part I)20
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The Meaning and Measurement of Risk and Return (Part II)25
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The Characteristics and Valuation of Bonds28
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The Characteristics and Valuation of Stock25
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The Cost of Capital25
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Capital-Budgeting Techniques and Practice26
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Cash Flows and Other Topics in Capital Budgeting26
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calculations deck S125
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Determining the Financing Mix (Part 1)18
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Determining the Financing Mix (Part 2)22
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Dividend Policy and Internal Financing24
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Working Capital Management (Part 1)20
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Working Capital Management Part 226
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Cash, Receivables, and Inventory Management (Part 1)25
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Cash, Receivables, and Inventory Management (Part 2)23
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Financial Risk Management (Part 1)20
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Financial Risk Management (Part 2)20
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calculations deck semester 223
