Finance- a body of concepts, theories, and models which deal with the raising and allocation of
funds by individuals, governments, and business
Government- public finance
Business- corporate finance
Individuals- personal finance
Dollar is worth more tomorrow and dollar of money tomorrow is less today.
Capital budgeting- in what fixed, tangible, real assets should a firm invest in?
Real assets are used to produce goods and service
How much should a firm spend/ what is the optimal capital budget?
Ans- optimal capital budget
Capital structure- how much debt a firm should use?
Ans- equity/debt- these 2 are external
Dividend policy- how to we split earning/profits between dividends and reinvestment for growth
Ans- reinvestment for growth- internal financing
Working capital management- how much cash should a firm carry?- excess cash- securities-
liquid and converted into cash quickly with a little loss of value
Accounts receivable, A/P, inventory- how much to carry?
Long term- longer than a year and short term- less than yr
1. Capital budgeting- LONG TERM
2. Capital structure- LONG TERM- long term financing
3. Dividend policy- stock prices reflect the current and future prospect of the firm- LONG
4. Working capital management- SHORT TERM
1 month T bill pays a small return – 0.14%
Stocks with no dividends may result in capital appreciation/growth
Cost of capital- discount rate- required rate of return
Midterm- first 5 weeks of lecture and final is cumulative LECTURE 1
Role of finance can vary- from small to really big- treasurer, president
Large companies- Google, RIM- can be more complicated
Shares of a company- you are the owners of the company and you should have say on how the
company is run, liability is limited. Owners are business are taxed separately. Double taxation –
company makes profit- business profit is taxed at corporate tax rate and whatever remains can be
paid as dividends or reinvestment. Dividends on the shareholders are taxed at personal tax rate-
you can have the dividends in RRSP- tax free
Registered retirement saving pla