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Introduction To Corporate Finance Essay

1958 words - 8 pages

Chapter 1
Introduction to Corporate Finance
Week 1

by Hee Soo Lee

Learning Goals
The basic types of financial management decisions and the role
of the financial manager
The financial implications of the different forms of business
The goal of financial management
The conflicts of interest that can arise between owners and
The various types of financial markets


Chapter Structure
1.1 The Types of Firms
1.2 Ownership Versus Control of Corporations
1.3 The Stock Market


What is Corporate Finance?

Three important questions that are answered when you start
your own business:
- What long-term investments ...view middle of the document...

A lender can
require any partner to repay all of the firm’s outstanding debts.
The partnership ends with the death or withdrawal of any single
Limited Partnership has two types of owners.
 General Partners
 Have the same rights and liability as partners in a
(general) partnership
 Typically run the firm on a day-to-day basis
 Limited Partners
 Have limited liability and cannot lose more than their
initial investment
 Have no management authority and cannot legally be involved in
the managerial decision making for the business


Limited Liability Companies (Corporation)
Limits the owners’ liability to their investment.
Two types of limited liability company:

Private company
Public company

A legal entity separate from its owners
Has many of the legal powers individuals have such as the
ability to enter into contracts, own assets, and
borrow money
The corporation is solely responsible for its own
obligations. Its owners are not liable for any obligation the
corporation enters into.


Limited Liability Companies (Corporation)

Corporations must be legally formed. A legal document (known as a
corporate charter in the United States) is created upon the
formation of the company.
Setting up a corporation is more costly than setting up a sole
proprietorship .

Ownership: Represented by shares of stock
An owner of share is known as a shareholder, stockholder, or
equity holder.
Sum of all ownership value is called equity.
There is no limit to the number of shareholders, and thus the
amount of funds a company can raise by selling shares.
Owner is entitled to dividend payments.


Tax Implications for Corporate Entities

Classical system (Double Taxation )

Imputation system
 In U.S. for “S” corporations the firm’s profits are not subject to
corporate income tax, but instead are allocated directly to the


Legal Forms of Business Organization


Financial Manager

Financial managers are in charge of answering some or all of
these questions
The financial manager actively manages the financial affairs of
any type of business, whether private or public, large or small,
profit-seeking or not-for-profit.
They are also more involved in developing corporate strategy
and improving the firm’s competitive position
The top financial manager within a firm is usually the Chief
Financial Officer (CFO)
- Treasurer – cash management, credit management, capital
expenditures, and financial planning
- Controller – taxes, cost accounting, financial accounting and
data processing

Corporate Organization


Financial Management Decisions

Investment Decisions (Capital budgeting): process of planning
and managing a firm’s long-term investment

Financing Decisions (Capital structure): mixture of long-term
debt and...

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