Principles of Corporate Finance

Seventh Edition

Chapter 1
Why Finance Matters

Richard A. Brealey Stewart C. Myers

Slides by Matthew Will

McGraw Hill/Irwin
Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

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Topics Covered
What Is A Corporation? The Role of The Financial Manager Who Is The Financial Manager? Separation of Ownership and Management Financial Markets

Irwin/McGraw Hill McGraw Hill/Irwin

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

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Corporate Structure
Sole Proprietorships Unlimited Liability Personal tax on profits Partnerships

Limited Liability Corporations Corporate tax on profits + Personal tax on dividends

Irwin/McGraw Hill McGraw Hill/Irwin

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

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Role of The Financial Manager

(2) (1)

Firm's operations
(3)

Financial manager

(4a)

Financial markets

(4b)
(1) Cash raised from investors (2) Cash invested in firm (3) Cash generated by operations (4a) Cash reinvested (4b) Cash returned to investors

Irwin/McGraw Hill McGraw Hill/Irwin

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

1- 5

Who is The Financial Manager?

Chief Financial Officer

Treasurer

Comptroller

Irwin/McGraw Hill McGraw Hill/Irwin

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

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Ownership vs. Management

Difference in Information Stock prices and returns Issues of shares and other securities Dividends Financing Different Objectives Managers vs. stockholders Top mgmt vs. operating mgmt Stockholders vs. banks and lenders

Irwin/McGraw Hill McGraw Hill/Irwin

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights