GMGT 1010 Lecture Notes - Lecture 18: Cash Flow Statement, Matching Principle, Corporate Security
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GMGT 1010 Full Course Notes
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Definition: finance is the management of money affairs. Invest in assets that generate more value than they cost. In order for us, as financial managers, to achieve these goals, we must understand how to determine value: identify cash flows and their timing, and consider risk. Types of businesses: sole proprietorship, partnership, corporation. Owner keeps all profits and pays taxes as personal income. Ceases to exist once the owner dies or withdraws. Cannot raise equity beyond the owner"s wealth (limits growth) Debt (bonds): a promised payment that will be made if the firm has sufficient assets. Equity (stocks): a residual claim on the firm"s assets that is secondary to the claim of debtholders. Contingent claim means the value depends on (is contingent on) something else. The pa problem can never be perfectly eliminated. Agency costs are the costs of monitoring management and the incentive schemes used to try to align management with shareholders.