Chapter 1 Corporate Finance

Corporate Governance

rules for corporate organization and conduct

Capital budgeting

The process of planning and managing a firm's investment in long-term assets

Corporation

a business created as a distinct legal entity owned by one or more individuals or entities

Partnership

a business formed by two or more co-owners

Sole Proprietorship

a business owned by a single individual

Stakeholder

anyone who potentially has a claim on a firm

Double Taxation

corporate profits are taxed twice, at the corporate level when they are earned, and again at the personal level when they are paid out

Financial Engineering

creation of new securities or financial processes

Capital Markets

financial markets where long-term debt and equity securities are bought and sold

Money Markets

financial markets where short-term debt securities are bought and sold

Goal for the financial manager

maximize the current value per share of existing stock

Derivative Securities

options, futures, and other securities whose value derives from the price of another, underlying, asset

Working Capital Management

planning and managing the firm's current assets and liabilities-- 1. how much cash and inventory should be kept on hand, 2. should we sell on credit (on what terms and to what extent, 3. how do we obtain any needed short-term and pay cash?

Capital structure

the mix of debt and equity maintained by a firm, how much should the firm borrow, the mixture affects both the risk and value of the firm, what are the least expensive sources of funds for the firm

Agency Problem

the possibility of conflicts of interest between the shareholders and management of a firm

Regulatory Dialectic

the pressures financial institutions and regulatory bodies exert on each other