Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,1-,0,Copyright 2001 by Harcourt,Inc.All rights reserved.,Fundamentals of Financial ManagementNinth Edition,Copyright 2001 by Harcourt,Inc.,All rights reserved.,Requests for permission to make copies of any part of the work should be mailed to the following address:Permissions Department,Harcourt,Inc.,6277 Sea Harbor Drive,Orlando,Florida 32887-6777.,ISBN 0-03-031478-X,Career opportunities,Issues of the new millennium,Forms of business organization,Goals of the corporation,Agency relationships,CHAPTER 1,An Overview of Financial Management,Money and capital markets,Investments,Financial management,Career Opportunities in Finance,Use of computers and electronic transfers of information,The globalization of business,Financial ManagementIssues of the new millennium,3,M51.726.9,Chase Manhattan27.826.6,Coca-Cola62.364.6,Exxon80.165.1,General Electric23.931.1,General Motors30.868.0,IBM56.868.9,McDonalds60.871.7,Merck24.927.4,Walt Disney16.718.9,Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations,1998,Percentage of Percentage of,Revenue Originated Net Income,Company OverseasGenerated Overseas,Forecasting and planning,Investment and financing decisions,Coordination and control,Transactions in the financial markets,Managing risk,Responsibilities of the Financial Staff,Sole proprietorship,Partnership,Corporation,Alternative Forms of Business Organization,Advantages:,Ease of formation,Subject to few regulations,No corporate income taxes,Disadvantages:,Limited life,Unlimited liability,Difficult to raise capital,Sole Proprietorship,A partnership has roughly the same advantages and disadvantages as a sole proprietorship.,Partnership,Advantages:,Unlimited life,Easy transfer of ownership,Limited liability,Ease of raising capital,Disadvantages:,Double taxation,Cost of set-up and report filing,Corporation,The primary goal is shareholder wealth maximization,which translates to maximizing stock price.,Do firms have any responsibilities to society at large?,Is stock price maximization good or bad for society?,Should firms behave ethically?,Goals of the Corporation,An agency relationship exists whenever a principal hires an agent to act on their behalf.,Within a corporation,agency relationships exist between:,Shareholders and managers,Shareholders and creditors,Agency Relationships,Managers are naturally inclined to act in their own best interests.,But the following factors affect managerial behavior:,Managerial compensation plans,Direct intervention by shareholders,The threat of firing,The threat of takeover,Shareholders versus Managers,Shareholders(through managers)could take actions to maximize stock price that are detrimental to creditors.,In the long run,such actions will raise the cost of debt and ultimately lower stock price.,Shareholders versus Creditors,Projected cash flows to shareholders,Timing of the cash flow stream,Riskiness of the cash flows,Factors that Affect Stock Price,Factors that Affect the Level and Riskiness of Cash Flows,Decisions made by financial managers:,Investment decisions,Financing decisions(the relative use of debt financing),Dividend policy decisions,The external environment,