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FN310 - Fundimentals of Financial Management

by: Haley Hummer

FN310 - Fundimentals of Financial Management FN310

Marketplace > University of Alabama at Birmingham > Finance > FN310 > FN310 Fundimentals of Financial Management
Haley Hummer
Fundimentals of Financial Management

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Fundimentals of Financial Management
Class Notes
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This 3 page Class Notes was uploaded by Haley Hummer on Tuesday September 8, 2015. The Class Notes belongs to FN310 at University of Alabama at Birmingham taught by in Fall 2015. Since its upload, it has received 26 views. For similar materials see Fundimentals of Financial Management in Finance at University of Alabama at Birmingham.


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Date Created: 09/08/15
Fundamentals of Financial Management 0 Finance with in an organization Boa rd of D i recto rs Chief Executive Of cer Chief Opperating Chief Finance Of cer Of cer Accounting Treasury Credit Legal Capital budgeting and investor relations Marketing Production HR and other Operating Departments 0 Forms of Business organizations O Proprietorship O Partnership 0 Corporation 0 Proprietors and Partnership 0 Advantages I Ease of formation I Subject to few relations I No corporate income tax 0 Disadvantages I Difficult to raise capital I Unlimited liability I Limited life I Often set up through LLC and LLP Corporation 0 0 Advantages I Unlimited life I Easy transfer of ownership I Limited liability I Ease of raising capital Disadvantages I Double taxation I Cost of set up and report filling Stock prices and intrinsic value 0 O O O In equilibrium a stock price should equal its true or intrinsic value Intrinsic value is a long run concept To the extent that investor perceptions are incorrect a stocks prices in the short run may deviate from its intrinsic value Ideally managers should avoid actions that reduce the intrinsic value even if those decisions increase the stock price in the long run Determinants of Intrinsic Value and Stock Price 0 Managerial actions the economic environment taxes and the political climate 39I Stocks intrinsic value 0 True investor cash ows 0 True risk 39I Stocks market price 0 Perceived investor cash ows 0 Perceived risk Managers are naturally inclined to act in their own best interests which is not always the same as the stockholders Factors may affect managerial behavior 0 O O O Managerial competition packages Direct intervention of stockholders Threat of firing Threat of takeover Stockholder Debtor con icts O O Stockholders are more likely to prefer riskier projects because they receive more of the upside if the project succeeds Bondholders receive fixed payments and are more interested in limited risk Bondholders are partially concerned about the use of additional debt O Bondholders attempt to protect themselves by including covenants in bond agreements that limit the use of additional debt and constrain managers actions The primary goal of financial management is shareholder wealth maximization which translates to maximizing stock price 0 Value of any asset is present value of cash ow stream to owners 0 Most significant decisions are evaluated in terms of financial consequences 0 Stock prices change over time as conditions change and as investors obtain new information about companies prospects Managers recognize that being socially responsible is not inconsistent with maximizing shareholder value


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