New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Note for FINA 3332 with Professor Chisholm at UH


Note for FINA 3332 with Professor Chisholm at UH

Marketplace > University of Houston > Note for FINA 3332 with Professor Chisholm at UH

No professor available

Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

No professor available
Class Notes
25 ?




Popular in Course

Popular in Department

This 12 page Class Notes was uploaded by an elite notetaker on Friday February 6, 2015. The Class Notes belongs to a course at University of Houston taught by a professor in Fall. Since its upload, it has received 17 views.

Similar to Course at UH


Reviews for Note for FINA 3332 with Professor Chisholm at UH


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/06/15
Chapter 1 The Role and Objective of Financial Management This chapter introduces the financial management process of the typical firm It looks at the field of finance various financial decisions and their implications and the daily questions faced by the firm s financial managers Primary Areas of Finance 1 Corporate finance also known as Business finance Managerial finance Financial Management 2 Investments 3 Financial Markets and Institutions Money and banking Chapter 1 1 Questions Faced by Financial Managers lWill a particular investment be successful lWhere will the funds come from to finance the investment lDoes the firm have adequate cash or access to cash to meet its daily operating needs Financial Manager s Decision Areas lLongterm 1 Capital budgeting the investment decision 2 Capital structure the financing decision 3 Dividend Policy lShortterm CI Working capital management Chapter 1 2 Basic Business Forms Sole proprietorship l Owned by one person I Advantage Easy formation l Disadvantage Unlimited liability l Disadvantage Difficulty raising funds I Represent 75 percent of all businesses I Account for less than 6 percent of total business revenues Partnership l Owned by two or more persons l About 7 percent of US businesses 5 percent of business revenues l Classified as general or limited I General partners work in the partnership l Advantage Limited partners liability is limited to what is specified in the agreement I Disadvantage Partnership dissolves when a general partner dies l Disadvantage Unlimited liability for general partners Chapter 1 Corporation a legal entity Advantages I Limited liability l Permanency l Ability to raise capital I Has a board of directors l Owners are stockholders I Flexibility l Legal entity l Easy marketability of shares of ownership Disadvantages l Double taxation of income I Cost of incorporation l Complexity Board of Directors l Stockholders elect a board of directors l Board of directors then elect the officers El Chairman of the board El Chief executive officer CEO El Chief operating officer COO El President El Chief financial officer CFO EIVice presidents El Treasurer El Secretary Chapter 1 Who Does What I Board of directors deals with broad policy I The board sets 3 to 5 year strategic plans I Management makes most of the decisions I Management makes daytoday decisions following the strategic plan Stockholder Rights l Dividends l Asset l Voting for board members major policy I Preemptive rights on new shares Priority of Corporate Securities Debt Securities Bonds highest Preferred stock PS Common stock CS lowesv Chapter 1 Shareholder Wealth Maximization 0 Primary objective of financial management 0 Primary objective of the financial manager NOT Profit maximization Chapter 1 Shareholder Wealth Maximization l Considers the timing and risk of the benefits from stock ownership l Determines that a good decision increases the price of the firm s common stock CS I Is an impersonal objective I Is concerned for social responsibility Maximize NPV of firm Maximize common stock price per share Stockholder Wealth Measured by the market value of common stock Value of Equity Market Capitalization Market Cap shares outstanding x Price 10 million shares10 per share 100 million Large gt 10 billion Mid 1 10 billion Small lt 1 billion Chapter 1 Divergent Objectives create Agency Problems I Problem created by separation of l Owners shareholders l Management and Employees l Management may maximize its own welfare instead of the owners wealth Agency Problem Second Type 0 Problem created by separation of 0 Owners 0 Creditors o Caused by conflicting interests concerning risk and returns 0 Protective covenants in loan agreements Chapter 1 Agency Costs I Corporate governance l Monitoring amp Bonding l Management compensation l Threat of takeovers l Greenmail I Annual audit by accounting firm I Recent Development l SarbanesOxley Act Shareholder Wealth Maximizing is a Market Concept and Results in gt Maximizing PV of Expected Cash FlowsReturns Important note Success is measured by Market Value of Common Stock Not by profit maximization Chapter 1 Limitations of Profit Maximization l Static nature of standard microeconomic model Lack of time dimension l Variable definition of profit I Provides no direct way for managers to consider the risk of alternative decisions Three Basic Factors Determine Common Stock Market Value I 1 Amount of Expected Cash Flows l 2 Timing of Expected Cash Flows l 3 Risk of Expected Cash Flows Chapter 1 10 Common Stock Price per Share Represents the present value of expected future cash flows to shareholders Present Value Discounted value of future cash flows Discount rate interest rate Reflects risk of cash flows Higher risk higher interest rate Future cash flows consist of Dividends Capital gainslosses Cash Flow Concept central to l Financial analysis I Planning l Resource allocation CF does not equal accounting profit Sources of Cash l Internal l External Chapter 1 11 NPV of an Investment NPV PV of future cash flows minus PV of cash outlays Represents the contribution of that investment to the value of the firm Represents the amount the Stockholder Wealth is expected to increase as a result of the investment Chapter 1 12


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.