Lecture 1

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6 Jan 2011
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Course notes: MGT338H Class 1
Let us suppose that the goal of the firm (a corporation) is to maximize shareholder value.
In order to operate, the firm will need to employ some assets. The question becomes:
which assets should the firm use? Should it build” or buy the assets it needs to
compete and win?
Finance and accounting are used, in part, to determine whether projected corporate
strategy moves are wise and to measure the results to see if they succeeded.
Suppose a firm is considering 4 different projects which it may implement in the coming
year. These may be to:
launch a new product
expand existing operations
buy some assets
buy another company, etc.
What factors should the management team consider when deciding which, if any, of these
projects to accept?
Answer:
Suppose the firm can invest $1,000,000 today, in return for $300,000/year at the end of
each year for the next 5 years. Is that an attractive investment?
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