Introduction to Finance
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Introduction to Finance

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Questions and Answers

What percentage of the final assessment is contributed by the final exam?

  • 20%
  • 75%
  • 50%
  • 80% (correct)

    • Which of the following is NOT a decision area for the Chief Financial Officer (CFO)?

  • Marketing Strategies (correct)
  • Financing Decisions
  • Investment Decisions
  • Dividend Policy Decisions

    • When should students aim to arrive for lectures?

  • 1 hour before the lecture
  • 10 minutes after the hour
  • 5 minutes before the hour (correct)
  • At the start of the hour

    • Who is NOT listed as a Teaching Assistant for the course?

    <p>John Smith</p> Signup and view all the answers

    Which reading material is available in hardcopy in the library?

    <p>Brealey et al., A.Fundamentals of Corporate Finance</p> Signup and view all the answers

    What is the focus of capital budgeting?

    <p>Choosing long-term investments</p> Signup and view all the answers

    What type of assessment will take place in the week of 4th November?

    <p>In-Person Test</p> Signup and view all the answers

    What is the primary goal of the course as mentioned?

    <p>Creating long-term value for the company</p> Signup and view all the answers

    What is a primary concern in corporate governance related to information asymmetry?

    <p>Managerial self-interest</p> Signup and view all the answers

    Which of the following is NOT a method for managing agency problems?

    <p>Lack of Disclosure</p> Signup and view all the answers

    What is the role of an independent board of directors?

    <p>To protect the interests of outside stakeholders</p> Signup and view all the answers

    Which factor can lead to a board of directors being considered dysfunctional?

    <p>Majority of directors being insiders</p> Signup and view all the answers

    Which of the following is a common agency problem faced by managers?

    <p>Targeting short-term earnings for bonuses</p> Signup and view all the answers

    What is one way in which activist shareholders can influence corporate governance?

    <p>By advocating for changes at companies like ExxonMobil</p> Signup and view all the answers

    How do compensation plans such as share options help mitigate agency problems?

    <p>By aligning managers' interests with long-term shareholder value</p> Signup and view all the answers

    Why do corporate scandals continue to occur despite the presence of corporate governance codes?

    <p>Codes are often not enforced adequately</p> Signup and view all the answers

    What is a primary disadvantage of a sole proprietorship?

    <p>Unlimited liability</p> Signup and view all the answers

    Which form of business organization is characterized by limited liability and separation of ownership and management?

    <p>Corporation</p> Signup and view all the answers

    What is a common disadvantage faced by corporations?

    <p>Double taxation</p> Signup and view all the answers

    Which type of organization is specifically designed to benefit the community while generating profit?

    <p>B Corporation</p> Signup and view all the answers

    What is a key characteristic of governmental organizations?

    <p>Fully state-owned or semi-states</p> Signup and view all the answers

    What challenge may arise when managers of a corporation are not the owners?

    <p>Potential misalignment of interests</p> Signup and view all the answers

    What aspect of business organizations does 'unlimited life' pertain to?

    <p>Corporations only</p> Signup and view all the answers

    Which form of organization is generally known for having less regulatory oversight?

    <p>Partnership</p> Signup and view all the answers

    What is the primary focus of the shareholder model proposed by Milton Friedman?

    <p>Maximizing financial value</p> Signup and view all the answers

    Which model incorporates social value and environmental value alongside financial value?

    <p>Refined Shareholder Model</p> Signup and view all the answers

    What is a major criticism of the shareholder value approach mentioned in the content?

    <p>It often leads to neglecting investment.</p> Signup and view all the answers

    In the context of corporate goals, which value types should be balanced according to the integrated model?

    <p>Profit, social value, and financial value</p> Signup and view all the answers

    What was a significant shift in corporate practices observed during the decline of managerial capitalism?

    <p>A shift towards maximizing shareholder wealth</p> Signup and view all the answers

    What trend regarding CEO compensation has been noted from 1965 to the present?

    <p>It has increased significantly compared to non-managerial workers.</p> Signup and view all the answers

    Why are public firms criticized in relation to their economic outcomes?

    <p>For focusing on short-term earnings and neglecting broader impacts</p> Signup and view all the answers

    What does the integrated model prioritize for corporate goals?

    <p>Balancing profit maximization with stakeholder impact</p> Signup and view all the answers

    Study Notes

    Introduction to Finance

    • Course Description: The course covers the financial decisions of firms and includes topics such as corporate governance, time value of money, valuing bonds, capital budgeting and dividend policy.
    • Instructor: Martha O’Hagan, [email protected]
    • Teaching Assistants: Laqiqige Zhu (Zhula), Dylan Kirby, Ruben Ruf, Eimhin O’Neill
    • Contact for Lecture Material: Email Professor O’Hagan or speak to her during office hours.
    • Contact for Tutorial Material: Contact the teaching assistant for the specific tutorial.
    • Assessment: 20% in-person test in the week of November 4th, 80% final exam.

    What The Goal Of A Corporation Is

    • Shareholder Model: Corporations should maximize shareholder wealth.
    • Refined Shareholder Model: Incorporates environmental and social value into the shareholder model since these factors influence financial value.
    • Stakeholder Model: In addition to financial agents (shareholders and debtholders), consider social agents (employees, customers, suppliers).
    • Integrated Model: Balance profit and impact for long-term benefit of all stakeholders.
    • Criticisms of Shareholder Value: Short-term focus, neglect of investment, exploitation of employees, depressed wages, and environmental damage.
    • CEO Pay: In 1965, CEO salaries were 15 times higher than non-managerial workers. Today, this ratio is over 200 to 1.

    Corporate Governance

    • Definition: Controlling and directing the company.
    • Agency Problems: Managers act in their own interest rather than maximizing shareholder value.
    • Solutions to Agency Problems:
      • Corporate Governance Codes: Regulations and business practices to protect investors.
      • Legal Requirements: Protection from insider trading and fiduciary duties.
      • Board of Directors: Approve dividends, securities, and compensation packages.
      • Internal Controls and Decision-Making Processes: To ensure transparency and accountability.
      • Compensation Plans: Share options to align manager interests with shareholder value.
      • Activist Shareholders: Invest in companies and advocate for change.
      • Financial Disclosure: Regular reporting of financial performance.
      • Threat of Takeover: If a company’s performance declines, takeover bids can force better management.

    (Independent) Board of Directors

    • Tests for Independence: Majority of directors are outsiders, the chairman is independent, and the compensation and audit committees are composed entirely of outsiders.

    Forms of Business Organisation

    • Sole Proprietorship/Partnership:
      • Disadvantages: Unlimited liability, limited life, difficult to raise capital.
      • Advantages: No separation of ownership and management, single-level taxation.
    • Corporation:
      • Advantages: Limited liability, unlimited life, easier to raise capital.
      • Disadvantages: Separation of ownership and management, double taxation.
    • Other Forms: Corporations, B Corporations, Social Enterprises, Governmental Organisations.

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    Related Documents

    Intro to Finance SF 2024 Lecture 1 - Introduction PDF

    Description

    This quiz evaluates your understanding of financial decisions made by firms, focusing on corporate governance, time value of money, and capital budgeting. It is designed for students enrolled in an introductory finance course that examines both the traditional and refined shareholder models. Prepare to apply concepts of maximizing shareholder wealth and stakeholder considerations.

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