AFM203 Chapter Notes - Chapter 1: Downside Risk, Capital Budgeting, Cash Flow

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM203
• Professor: Hector Habullar

Document Summary

Results of your decision and how it will affect parties involved. Consider how it affects the big picture / different areas. 3/4 of companies have no formal corporate wide approach to making major complex decisions. Define what a good decision looks like. Dq decision quality: high quality decision as the course of action that will capture the most value or get the most of what you are seeking, given the uncertainties and complexities of the real world. How to pay for investments and expenses. Companies need to decide between raising capital through debt financing or issuing equity. Pecking order theory argues companies: companies prefer internal financing to external financing, generate internal financing through retained earnings, prefer debt issues over equity issues if funding beyond the internal financing is needed. Interest on debt financing is tax deductible and increase tax shields: also increases risk of bankruptcy.