Week 1 Notes
Week 1 Notes BADM 3501
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This 5 page Class Notes was uploaded by Camille Duarte on Monday September 7, 2015. The Class Notes belongs to BADM 3501 at George Washington University taught by Mark Klock in Summer 2015. Since its upload, it has received 62 views. For similar materials see Financial Management and Markets in Business Administration at George Washington University.
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Date Created: 09/07/15
BADM 3501 91 09012015 Goals and Governance of the Corporation Investment and Financing Decisions Capital Budgeting Decision 0 Decision to invest in tangible or intangible assets 0 Also called the Investment Decision The Capital Expenditure CAPEX decision Financing Decision 0 Decision on the sources and amounts of nancing Capital Structure 0 The mix of longterm debt and equity nancing Real Assets 0 Assets used to produce goods and services Financial Assets 0 Financial claims to the income generated by the rm s real assets Are the following capital budgeting or nancing decisions lntel decides to spend 18 to develop a new microprocessor capital budge ng Royal Dutch Shell constructs a pipeline to bring natural gas onshore from a production platform in Australia capital budgeting P zer issues new shares to buy a small biotech company capital budgeting and nancing decision What is a Corporation Corporation 0 A business organized as a separate legal entity owned by stockholders Types of Corporation 0 Public Companies 0 Private Companies 0 Limited Liability Corporations LLC Register with Security and Exchange Commission issue shares 0 Types of Business Organizations 0 Sole Proprietorship going into business for yourself 0 Partnerships group of people going into business together General all partners are liable for the business Limited must have one general partner Other partners have limited partnership status liability limited to amount they invested Corporations 0 Limited Liability Options Limited Liability Partnerships Limited Liability Corporations ProfessionalCorporations 0 Limited Liability The owners of a corporation are not personally liable for its obligations O Sole Empirietmshmp Partnershin Corporation Who owns the business The manager Partners Stockholders Are mana ers and o 39 39ners a w No No Usually separate H is owner s liability Unlim Unlimited Limited l Are the owner and business V l N0 No Yes taxed separately 1 J Who is the Financial Manager 0 Chief Financial Of ce CFO o Supervises all nancial functions and sets overall nancial strategy Treasurer o Responsible for nancing cash management and relationships with banks and other nancial institutions 0 Controller 0 Responsible for budgeting accounting and taxes Goals of the Corporation Shareholders desire wealth maximization 0 Pro t maximization o Maximize pro ts Which year s pro ts 0 Earning manipulation Opportunity cost of capital 0 The minimum acceptable rate of return on capital investment is set by the investment opportunities available to shareholders in nancial markets Agency Problem 0 Do managers maximize shareholder wealth or manager wealth Managers have many constituencies stakeholders Stakeholder 0 Anyone with a nancial interest in the corporation 0 Corporate Governance 0 The laws regulations institutions and corporate practices that protect shareholders and other investors BADM 3501 93 09032015 Financial Markets and Institutions Businesses have to go to nancial markets and institutions for the nancing they need to grow 0 Financing decision 0 Source of Funds Capital 0 Capital Structure Financial Market 0 Market where securities are issued and traded Primary Market 0 Market for the sale of new securities by corporations Secondary Market 0 Market in which previously issued securities are traded among investors Liquidity o Bigger market where you purchase stocks from someone who previously owned a stock corporation doesn t receive and money they got the money in primary market The Flow of Savings to Corporation Fixedincome market market for debt securities 0 Capital Market market for longterm nancing 0 Money Market market for shortterm nancing less than 1 year 0 Financial Intermediary 0 An organization that raises money from investors and provides nancing for individuals corporations or other organizations 0 Banks insurance companies pension funds mutual funds 0 Financial Institution 0 A bank insurance company or any similar intermediary Mutual Fund 0 An investment company that pools the savings of many investors and invests in a portfolio of securities 0 Hedge Fund 0 A private investment pool open to wealthy or institutional investors that is only lightly regulated and therefore can pursue more speculative policies than mutual funds o Pension Fund 0 Fund set up by an employer to provide for employees retirement Function of Financial Markets Transporting cash across time Risk transfer and diversi cation Liquidity Payment mechanism 0 Provide information Information provided by nancial markets Commodity prices 0 Interest rates 0 Company values Interest rates and prices are inversely related Market Capitilzation Dollar value of stock outstanding 0 Number of shares x Stock Price Market Capitalization The Crisis of 200709 0 Easy money Subprime mortgages Mortgage backed securities Bear Sterns AIG IMF Greece I
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