Financial Modelling 2555A/B Study Guide - Midterm Guide: Cash Flow, Profit Maximization, Net Present Value
7 Dec 2016
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Corporation pays for real assets by selling claims on them and the cash flow they will generate. Capital structure: choice between debt and equity financing. Corporations raise equity financing in 2 ways: issue new shares of stock, reinvest. Payout decision: choice to pay dividends or repurchase shares. Market cap = number of shares outstanding x share price. Shareholders have limited liability liable only up to their initial investment. When corporation is just established, shares may be privately held by a small lgroup of investors. When firm grows, shares are traded in public markets. Separation of ownership and control means pubic corporation has many shareholders who do not control/manage it directly. Flow of cashflow to and from investors: cash raised by selling financial assets to investors, cash invested into firms operatio, used to purchase real assets, cash generated by irms operations, cash is reinvested or returned to investors.
