5 Questions
What are the three main corporate finance decisions?
Investment decision, Financing decision, Dividend decision
What should be the goal of corporate finance decisions?
Maximization of firm value
What should the expected rate of return reflect?
Magnitude and timing of future cashflows as well as all side effects
What does the optimal capital structure maximize?
Firm value
What should the hurdle rate reflect?
Risk of the investment and the capital structure used to finance it
Study Notes
Corporate Finance Decisions
- The three main corporate finance decisions are:
- Investment decisions (capital budgeting): deciding which projects to invest in
- Financing decisions (capital structure): deciding how to finance the projects
- Dividend decisions (payout policy): deciding how to distribute profits to shareholders
Goal of Corporate Finance Decisions
- The goal of corporate finance decisions should be to maximize shareholder value
Expected Rate of Return
- The expected rate of return should reflect the risk of the investment
Optimal Capital Structure
- The optimal capital structure maximizes the firm's value by balancing the debt and equity mix
Hurdle Rate
- The hurdle rate should reflect the minimum rate of return required to justify an investment
Test your knowledge of corporate finance decisions in financial markets with this quiz. Learn about maximizing firm value, investment decisions, financing decisions, dividend decisions, and risk management. Discover how to find the right kind of debt for your firm and make profitable investments.
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