Management and Organizational Studies 1023A/B Study Guide - Final Guide: Capital Structure, Insider Trading, Nikkei 225

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MOS 1023A/B Full Course Notes
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MOS 1023A/B Full Course Notes
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The goal of the firm: goal: (cid:272)(cid:396)eate (cid:448)alue fo(cid:396) the fi(cid:396)(cid:373)"s sha(cid:396)eholde(cid:396)s, i(cid:374)(cid:272)(cid:396)ease thei(cid:396) (cid:449)ealth by maximizing the price of the existing common stock. Stock price reflects the business decisions of a manager: good financial decisions will help increase stock price and, poor financial decisions will lead to a decline in stock price. Shareholders have residual claims against the company: residual = what"s left (a=l+e, a-l=e, risk of losing investment, come in last (contractual paid first) but can make the most $ The role of finance in business: three basic issues addressed by the study of finance, what long-term investments should the firm undertake? (capital budgeting decision) Infrastructure, investing, financing, operations: how should the firm raise money to fund these investments? (capital structure decision) Principle 1: cash flow is what matters: accounting profits are not e(cid:395)ual to (cid:272)ash flo(cid:449)s. (cid:894)cash does(cid:374)"t = p(cid:396)ofit(cid:895)