a. Corporate finance is important to all managers because it helps them identify and use strategies and projects that add worth to their firm. It also helps forecast funding requirements and formulate strategies for obtaining those funds.
b. Organizational forms of business
a. Sole proprietorship or Partnership
i. Advantages- Ease of formation. Subject to few regulations. No corporate income taxes.
ii. Disadvantages- Limited life. Unlimited liability. Difficult to raise capital.
i. Advantages- Unlimited life. Easy transfer of ownership. Limited liability. Ease of raising capital.
ii. Disadvantages- Double taxation. Cost of set-up and report filing
c. Going public
d. A manager’s primary objective should be to maximize shareholder wealth which also means maximizing stock prices.
a. Firms do have a responsibility to society because shareholders are members of the society so taking care of society in return takes care of your shareholders.
b. Maximizing stock price is good for society because firms who try to maximize stock prices usually hire more employees which give the people of society working jobs.
c. All firms should behave ethically. Firms, employees and consumers. No one likes doing business with companies that don’t treat employees or consumers ethically.
e. Three factors that determine cash flows are sales revenue, operating expenses and necessary investments in operating capital.
f. Free cash flows represent the cash that a company is able to produce after laying out the money required to maintain or grow its asset base.
g. Weighted average cost of capital is the average return required by all of the firm’s investors.
h. Free cash flows and weighted average cost of capital interact to determine a firms value by looking at the amount of cash needed to grow and amount needed to be paid out by investors.
i. Providers (savers) and users (borrowers).
a. Savers- Households
b. Users/ Borrowers-...