25300 Lecture Notes - Lecture 1: Capital Market, Law Of Agency, Secondary Market
Document Summary
Goal of financial management maximise shareholder wealth: profit maximization is not shareholder wealth maximization profits depends on accounting standards, measured in terms of cash flow. Factors in any financial decision: cash flow, time time value of money (tvm, risk risk return trade off (higher return, to induce people to take a higher risk, they must have an incentive. Inventory management, when to allow credit sales? leverage. Easy to set up, owner has complete control. Separate legal entity, limited liability, access to capital, unlimited life (easy of transferability) undercapitalized (not easy access to capital), Problem with size of firm and control, agency problem (objectives different) chain of command. Important consideration is the timing of these cash flows tvm must be. Lecture 2 time value of money 1. No additional funds raised by firm recognised i interest rate. Present value (pv) the current value of investment n number of periods. Pmv periodic payment (usually in equal amounts)
