Corporate Finance reading and exercise.

Corporate finance tasks include making capital investments and

deploying a company's long-term capital. The capital investment
decision process is primarily concerned with capital budgeting.
Through this, a company identifies capital expenditures, estimates
future cash flows from proposed capital projects, compares planned
What is Corporate Finance ?
investments with potential proceeds, and decides which projects to
include in its capital budget. Making these is perhaps the most
important corporate finance task that can have serious business
implications. Poor capital budgeting (e.g., excessive investing or
under-funded investments) can compromise a company's financial
position, either because of increased financing costs or inadequate
operating capacity. Corporate financing includes the activities involved
with a corporation's financing, investment, and capital budgeting
decisions.

Once the firm has gained access to capital, the financial manager faces the
next big decision. This decision is to deploy the funds in a manner that it
yields the maximum returns for its shareholders. For this decision, the firm
must be aware of its cost of capital. Once they know their cost of capital, they
can deploy their funds in a way that the returns that accrue are more than the
cost of capital which the company has to pay. Finding such investments and
deploying the funds successfully is the investing decision. It is also known as
Conclusion capital budgeting and is an integral part of corporate finance. Capital
budgeting has a theoretical assumption that the firm has access to unlimited
financing as long as they have feasible projects. A variation of this decision is
capital rationing. Here the assumption is that the firm has limited funds and
must choose amongst competing projects even though all of them may be
financially viable. The firm thus has to select only those projects that will

Understanding Corporate Finance.
Capital Investments
provide the best return in the long term.
Corporate finance is also tasked with short-term financial
management, where the goal is to ensure that there is enough liquidity
to carry out continuing operations. Short-term financial management
concerns current assets and current liabilities or working capital and
operating cash flows. A company must be able to meet all its current
liability obligations when due. This involves having enough current
liquid assets to avoid disrupting a company's operations. Short-term
financial management may also involve getting additional credit lines
or issuing commercial papers as liquidity back-ups.
Corporate finance departments are charged with governing and
overseeing their firms' financial activities and capital investment
decisions. Such decisions include whether to pursue a proposed
investment and whether to pay for the investment with equity, debt, or
both.
KEY TAKEAWAYS
● Corporate finance is often associated with a firm's decision to
undertake capital investments and other investment-related
decisions.
● Corporate finance manages short-term financial decisions that
affect operations.
● In addition to capital investments, corporate finance deals with
sourcing capital.
It also includes whether shareholders should receive
dividends. Additionally, the finance department manages current
 assets, current liabilities, and inventory control.

As stated above the firm now has access to capital

markets to fulfill its financing needs. However, the firm faces
multiple choices when it comes to financing. The firm can firstly
choose whether it wants to raise equity capital or debt capital.
Even within the equity and debt capital the firm faces multiple
choices. They can opt for a bank loan, corporate loans, public
fixed deposits, debentures and amongst a wide variety of
Capital Financing
options to raise funds. With financial innovation and
securitization, the range of instruments that the firm can use to
raise capital has become very large. The job of a financial
manager therefore is to ensure that the firm is well capitalized
i.e. they have the right amount of capital and that the firm has
the right capital structure i.e. they have the right mix of debt and
equity and other financial instruments.

…is one of the most important subjects in the financial domain. It

is deep rooted in our daily lives. All of us work in big or small
corporations. These corporations raise capital and then deploy
this capital for productive purposes. The financial calculations
that go behind raising and successfully deploying capital is what
forms the basis of corporate finance. Here is a short introduction:

Short-Term Liquidity Corporate finance is the division of finance that deals with how
corporations deal with funding sources, capital structuring, and
investment decisions. Corporate finance is primarily concerned
with maximizing shareholder value through long and short-term
financial planning and the implementation of various strategies.
 Corporate finance activities range from capital investment
decisions to investment banking.

Corporate finance is also responsible for sourcing capital in the

form of debt or equity. A company may borrow from commercial
banks and other financial intermediaries or may issue debt
securities in the capital markets through investment banks (IB).
A company may also choose to sell stocks to equity investors,
especially when need large amounts of capital for business
Financing Decision
expansions. Capital financing is a balancing act in terms of
deciding on the relative amounts or weights between debt and
equity. Having too much debt may increase default risk, and
relying heavily on equity can dilute earnings and value for early
investors. In the end, capital financing must provide the capital
needed to implement capital investments.

Financing and investing decisions are like two sides of the same
coin. The firm must raise finances only when it has suitable
avenues to deploy them. The domain of corporate finance has
Investment Decision various tools and techniques which allow managers to evaluate
financing and investing decisions. It is thus essential for the
financial well being of a firm.

Instructions:

√ Print and cut the squares .Order the paragraphs according to the titles.

√ Match the paragraphs to make the article.

√ Take a screenshot of your matching order

Exercise: (Teamwork)
Once your article is in order answer these questions with T (True) or F (False).

Send the screenshot of your article in order and your exercise. Include team number with your members’ names and
percentage of work in the front page.

Note: You print the exercise and do it by handwriting. Include your name, group, etc.

___ Corporate finance is scarcely associated with a firm’s decision to undertake capital investments.

___ Corporate finance is the division of finance that deals with how corporations deal with funding sources, investment decisions

but not capital structuring.

___ A company must be able to meet all its current liability obligations when due.

___ Within the equity and debt capital the firm doesn’t have to face multiple choices.

___ Short-term financial management concerns current assets and current liabilities or working capital and operating cash flows.

___ Corporate finance decisions do not include whether to pursue a proposed investment and whether to pay for the investment

with equity, debt, or both.

___Having too much debt may decrease default risk, and relying heavily on equity can dilute earnings and value for early

investors.

___ A firm has access to capital markets to fulfill its financing needs.
___ Capital budgeting has a theoretical assumption that the firm has access to limited financing as long as they have feasible

projects.

___ Corporate finance tasks include making capital investments and deploying a company's long-term capital.