COMM 121 Chapter Notes - Chapter 1: Cash Flow, Current Liability, Capital Structure

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8 Feb 2014
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Goal of firm is to maximize value of sh wealth. Firm must create wealth: buy assets that generate more money than they cost, sell securities that generate more money than they cost. Net working capital = current assets current liabilities. *in order to purchase long-lived assets, firm must obtain financing. Short-term debt that must be repaid within a year. Long-term debt that does not have to be repaid within a year. Creditor: person/institution that buys debt from firm (b) The size of the firm is value of firm as determined by financial markets v = b + s. Process of making and managing expenditures of long-lived assets. Important variable: cash flow to firm, not shareholders. Two important considerations in finance: timing of cash flows. The value of investment depends on timing of cash flows. Prefer to receive sooner: risk of cash flows. If value of firm is greater than or equal to f, debtholders get f.

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