Podcast
Questions and Answers
Which of the following best describes the primary goal of corporate finance?
Which of the following best describes the primary goal of corporate finance?
- Maximizing short-term profits regardless of the long-term impact.
- Minimizing operational costs by any means necessary.
- Ensuring compliance with all regulatory requirements, even if it hinders growth.
- Understanding how corporations balance investment and financing decisions to enhance company value. (correct)
A company is considering an investment in new machinery that will increase production capacity. This decision falls under which category?
A company is considering an investment in new machinery that will increase production capacity. This decision falls under which category?
- Financing decision.
- Capital structure optimization.
- Working capital management.
- Investment decision. (correct)
What is the main purpose of financing decisions for a corporation?
What is the main purpose of financing decisions for a corporation?
- To determine the optimal allocation of resources within existing projects.
- To minimize tax liabilities and maximize accounting profits.
- To raise capital for investments and operations. (correct)
- To manage day-to-day expenses and cash flow.
Issuing bonds is an example of which type of corporate financial decision?
Issuing bonds is an example of which type of corporate financial decision?
How do investment decisions impact a company's long-term prospects?
How do investment decisions impact a company's long-term prospects?
What distinguishes investment decisions from financing decisions in corporate finance?
What distinguishes investment decisions from financing decisions in corporate finance?
A technology company decides to acquire a patent from another firm. Under which type of decision does this fall?
A technology company decides to acquire a patent from another firm. Under which type of decision does this fall?
If a company chooses to use its retained earnings to fund a new project instead of issuing new debt, what type of decision is this considered?
If a company chooses to use its retained earnings to fund a new project instead of issuing new debt, what type of decision is this considered?
What is the potential impact of a poorly assessed investment decision on a corporation?
What is the potential impact of a poorly assessed investment decision on a corporation?
How does a company's decision to increase its dividend payout affect its financial structure?
How does a company's decision to increase its dividend payout affect its financial structure?
Flashcards
Investment Decisions
Investment Decisions
Decisions about which assets a company should invest in, aiming to contribute to the business’s operations.
Financing Decisions
Financing Decisions
Decisions about how a firm should raise money to fund investments and operations, involving equity and liabilities.
Investment
Investment
Acquiring tangible (machinery, buildings) and intangible (patents, brand names) assets to support business operations.
Financing
Financing
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Corporate Finance
Corporate Finance
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Intel's Factory Decision
Intel's Factory Decision
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BMW's Loan
BMW's Loan
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Royal Dutch Shell's Pipeline
Royal Dutch Shell's Pipeline
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Avon's Cosmetics Launch
Avon's Cosmetics Launch
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Pfizer's Acquisition
Pfizer's Acquisition
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Study Notes
- Companies require both tangible (machinery, buildings) and intangible (patents, brand names) assets to produce goods and services
- Funds to purchase these assets are the company's financing
Financial Decisions
- Financial managers make financial decisions about investments and financing
- Corporate finance studies how corporations make financial decisions using analytical tools
Investment Decisions
- Investment decisions involve purchasing assets for business operations
- These are also known as capital budgeting, or capital expenditure (CAPEX) decisions.
- Investment decisions can have long-term (ex: purchasing a plane) or short-term consequences (ex: seasonal advertising)
- Investments involve large costs and risks but allow companies to launch new products/services.
- Meta spent $60 million to acquire Pebbles
- Ford plans to invest $1 billion in Mexico to build an assembly plant
Financing Decisions
- Financial managers raise money for investments and operations
- Companies need to persuade investors to provide cash for a share of future profits
- Claims represent equity and liabilities in exchange for cash investments
- Investment involves acquiring real assets; financing involves issuing financial assets to investors
- John Deere has credit lines with banks up to $7.2 billion
- LVMH repaid €750 million in debt issued in 2009 and 2011
- Walmart raised its annual dividend to $2.00 a share
Investment or Financing Decisions Examples
- Intel spending $7 billion on a new microprocessor factory is an investment decision
- BMW borrowing 350 million euros from Deutsche Bank is a financing decision
- Royal Dutch Shell building a natural gas pipeline in Australia is an investment decision
- Avon spending €200 million on a new cosmetics range in Europe is an investment decision
- Pfizer issuing new shares to buy a biotech company is both (more financing though)
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