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Questions and Answers
What percentage of the final assessment is contributed by the final exam?
What percentage of the final assessment is contributed by the final exam?
Which of the following is NOT a decision area for the Chief Financial Officer (CFO)?
Which of the following is NOT a decision area for the Chief Financial Officer (CFO)?
When should students aim to arrive for lectures?
When should students aim to arrive for lectures?
Who is NOT listed as a Teaching Assistant for the course?
Who is NOT listed as a Teaching Assistant for the course?
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Which reading material is available in hardcopy in the library?
Which reading material is available in hardcopy in the library?
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What is the focus of capital budgeting?
What is the focus of capital budgeting?
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What type of assessment will take place in the week of 4th November?
What type of assessment will take place in the week of 4th November?
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What is the primary goal of the course as mentioned?
What is the primary goal of the course as mentioned?
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What is a primary concern in corporate governance related to information asymmetry?
What is a primary concern in corporate governance related to information asymmetry?
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Which of the following is NOT a method for managing agency problems?
Which of the following is NOT a method for managing agency problems?
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What is the role of an independent board of directors?
What is the role of an independent board of directors?
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Which factor can lead to a board of directors being considered dysfunctional?
Which factor can lead to a board of directors being considered dysfunctional?
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Which of the following is a common agency problem faced by managers?
Which of the following is a common agency problem faced by managers?
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What is one way in which activist shareholders can influence corporate governance?
What is one way in which activist shareholders can influence corporate governance?
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How do compensation plans such as share options help mitigate agency problems?
How do compensation plans such as share options help mitigate agency problems?
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Why do corporate scandals continue to occur despite the presence of corporate governance codes?
Why do corporate scandals continue to occur despite the presence of corporate governance codes?
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What is a primary disadvantage of a sole proprietorship?
What is a primary disadvantage of a sole proprietorship?
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Which form of business organization is characterized by limited liability and separation of ownership and management?
Which form of business organization is characterized by limited liability and separation of ownership and management?
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What is a common disadvantage faced by corporations?
What is a common disadvantage faced by corporations?
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Which type of organization is specifically designed to benefit the community while generating profit?
Which type of organization is specifically designed to benefit the community while generating profit?
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What is a key characteristic of governmental organizations?
What is a key characteristic of governmental organizations?
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What challenge may arise when managers of a corporation are not the owners?
What challenge may arise when managers of a corporation are not the owners?
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What aspect of business organizations does 'unlimited life' pertain to?
What aspect of business organizations does 'unlimited life' pertain to?
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Which form of organization is generally known for having less regulatory oversight?
Which form of organization is generally known for having less regulatory oversight?
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What is the primary focus of the shareholder model proposed by Milton Friedman?
What is the primary focus of the shareholder model proposed by Milton Friedman?
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Which model incorporates social value and environmental value alongside financial value?
Which model incorporates social value and environmental value alongside financial value?
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What is a major criticism of the shareholder value approach mentioned in the content?
What is a major criticism of the shareholder value approach mentioned in the content?
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In the context of corporate goals, which value types should be balanced according to the integrated model?
In the context of corporate goals, which value types should be balanced according to the integrated model?
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What was a significant shift in corporate practices observed during the decline of managerial capitalism?
What was a significant shift in corporate practices observed during the decline of managerial capitalism?
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What trend regarding CEO compensation has been noted from 1965 to the present?
What trend regarding CEO compensation has been noted from 1965 to the present?
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Why are public firms criticized in relation to their economic outcomes?
Why are public firms criticized in relation to their economic outcomes?
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What does the integrated model prioritize for corporate goals?
What does the integrated model prioritize for corporate goals?
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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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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.
