Corporate finance

Chapter one

1 corporate finance: is a deviation of finance that deals with financing, capital

structure and investment decision

2 corporate finance has a three main area of concern

 Capital structure: the mixture of debt and equity maintained by the firm
 capitals budgeting: the process of planning and managing a firm’s long-
term investment
 Working capital: a firms long-term assets and liabilities

3 Sole proprietorship: is bossiness owned by a single individual

Advantage disadvantage
 You’re the boss have unlimited liability
 you keep all the profits the life of the business is limited
 start-up costs are low you’re taxed as a single person
 you have maximum privacy your capacity to raise capital is
limited

4partnerships: business formed by two or more individual or entities

Advantage disadvantage
Easy to get start the business has independent legal status
Better decision-making unlimited liability
Easy access to profits Limited access to capita
6 corporations: is a business created as a distinct legal entity composed one or
more individual or interties
Advantage disadvantage
 Limited liability Double taxation.

 Source of capital. Distinct Legal Entity

 Ownership transfers. Increasing profit
 Perpetual life.

7 possible goals
Survive, minimize cost, maximize sales and market share and Maximize profit

8 the goal of financial management is to maximize the current value per

share of the existing stock

9 agency problem: the possibility of conflict of interest between the

stockholders and management of the firm

10 agency relationship: is relationship between stockholders and

management

11 stockholders: someone other than a stockholder or creditor who potentially

has a claim on the cash flow of the firm
12 three main financial decisions, they are:
1. Investment Decision 2. Financing Decision 3 operation decision

Prepared by nimco xusen