Podcast
Questions and Answers
What is the main focus of capital budgeting?
What is the main focus of capital budgeting?
- Maximizing short-term profits
- Deciding the best mix of debt and equity
- Planning for emergency financial needs
- Evaluating future cash flows based on size, timing, and risk (correct)
Which officer is typically not directly involved in day-to-day decision making in large corporations?
Which officer is typically not directly involved in day-to-day decision making in large corporations?
- Treasurer
- Chief Financial Officer (CFO)
- Stockholder (correct)
- Controller
What is the primary responsibility of the treasurer's office in a corporation?
What is the primary responsibility of the treasurer's office in a corporation?
- Managing the firm’s investments
- Preparing tax filings and management information
- Cost and financial accounting
- Managing cash, credit, and financial planning (correct)
Which of the following best describes the mixture of debt and equity in a firm?
Which of the following best describes the mixture of debt and equity in a firm?
Which concept involves evaluating future cash flows in order to make decisions about long-term investments?
Which concept involves evaluating future cash flows in order to make decisions about long-term investments?
How does corporate finance primarily define its area of study?
How does corporate finance primarily define its area of study?
Which group primarily deals with investment assets like stocks and bonds?
Which group primarily deals with investment assets like stocks and bonds?
Which of the following best describes the role of the controller's office in a firm?
Which of the following best describes the role of the controller's office in a firm?
What question is typically NOT considered in corporate finance?
What question is typically NOT considered in corporate finance?
Which aspect of finance focuses on everyday financial activities like collecting from customers?
Which aspect of finance focuses on everyday financial activities like collecting from customers?
Flashcards
Capital Budgeting
Capital Budgeting
Planning and managing a firm's long-term investments, evaluating future cash flows.
Capital Structure
Capital Structure
Mixture of debt and equity maintained by a firm.
Working Capital Management
Working Capital Management
Managing a firm's short-term assets and liabilities.
Corporate Finance
Corporate Finance
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Financial Manager
Financial Manager
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Controller
Controller
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Treasurer
Treasurer
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Financial Institutions
Financial Institutions
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Investment
Investment
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CFO (Chief Financial Officer)
CFO (Chief Financial Officer)
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Study Notes
Financial Management Decisions
- Financial managers need to address three key questions:
- Capital budgeting: How to plan and manage a company's long-term investments. This involves evaluating the size, timing, and risk of future cash flows associated with these investments.
- Capital structure: How to determine the optimal mix of debt and equity financing for the firm. This includes figuring out the best amount of borrowing and the right balance between debt and equity.
- Working capital management: How to manage short-term assets and liabilities. This involves managing everyday finances such as collecting from customers and paying suppliers.
The Financial Manager
- Owners (stockholders) of large corporations typically don't directly manage daily business decisions.
- Corporations hire managers to represent their owners' interests.
- Financial management is usually headed by a top officer such as a Vice President of Finance (or CFO).
- The CFO coordinates various activities of the treasurer and controller: -The controller handles cost and financial accounting, tax payments, and management information systems. -The treasurer manages the firm's cash and credit, financial planning, and capital expenditures.
Corporate Finance
- Corporate finance is the study of how corporations make financial decisions.
- Central questions to answer in corporate finance:
- Long-term investment decisions: What long-term investments should the company undertake (e.g., new buildings, equipment).
- Financing decisions: How should the business fund these investments? (Borrowing money or bringing in outside investors)
- Short-term financial management: How should the company manage daily financial activities (e.g., collecting from customers, paying suppliers)?
Finance: A Quick Look
- Key areas of finance include:
-Corporate finance (focus of this textbook)
-Investments (deals with financial assets like stocks and bonds)
-Financial institutions (businesses that work with financial matters, such as banks).
-International finance (involves the international aspects of finance)
- Fintech (combines technology and finance)
Chapter Outline
- The chapter covers Finance, Corporate Finance & the Financial Manager, Forms of Business Organization, The Goal of Financial Management, The Agency Problem and Control of the Corporation, and Financial Markets and the Corporation.
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