COMM 203 Lecture Notes - Lecture 1: Capital Budgeting, Limited Partnership, Abuse
Document Summary
Financial manager evaluate: size, timing, risk of future cash flows in the essence of capital budgeting. The goal of financial management is to make money or add value for the owners. How to identify investments and financing arrangements that favorably impact the value of stock. The agency problem and control of the corporation. Agency relationship: relationship between stockholders and management: exist whenever someone (the principal) hires another (the agent) to represent his or her interest. Agency problem: conflict between the principal and the agent. Agency cost: refers to the cost of the conflict of interest between stockholders and management. Indirect cost: lost opportunity: direct cost, benefit management but cost the stockholders, expense that arises from the need to monitor management actions. Managerial compensation: ensures that managers have adequate incentives to maximize shareholder value. Managerial compensation is tied to financial performance in general and often to share value in particular.
