Fundamentals of Financial Management Ninth Edition.pptVIP

 Career opportunities Issues of the new millennium Forms of business organization Goals of the corporation Agency relationships Money and capital markets Investments Financial management Use of computers and electronic transfers of information The globalization of business Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations, 1998 3M 51.7 26.9 Chase Manhattan 27.8 26.6 Coca-Cola 62.3 64.6 Exxon 80.1 65.1 General Electric 23.9 31.1 General Motors 30.8 68.0 IBM 56.8 68.9 McDonald’s 60.8 71.7 Merck 24.9 27.4 Walt Disney 16.7 18.9 Forecasting and planning Investment and financing decisions Coordination and control Transactions in the financial markets Managing risk Sole proprietorship Partnership Corporation Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Unlimited liability Difficult to raise capital A partnership has roughly the same advantages and disadvantages as a sole proprietorship. Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Double taxation Cost of set-up and report filing The primary goal is shareholder wealth maximization, which translates to maximizing stock price. Do firms have any responsibilities to society at large? Is stock price maximization good or bad for society? Should firms behave ethically? An agency relationship exists whenever a principal hires an agent to act on their behalf. Within a corporation, agency relationships exist between: Shareholders and managers Shareholders and creditors Managers are naturally inclined to act in their own best interests. But the following factors affect managerial behavior: Managerial compensation plans Direct intervention by shareholders The threat of firing The threat of takeover Shareholders (through managers) could take actions to maximize stock price that are detrimental to creditors. In the long run, such actions will raise the cost of de