University:
California State University, Northridge
Course:
FIN 502 | Managerial Finance
Academic year:

2023
Views:

59

Pages:

8
Author:

do3ran7ut

Principles of Managerial Finance, Brief Chapter 1 The Role of Managerial Finance Learning Goals (1 of 2) LG 1 Define finance and the managerial finance function. LG 2 Describe the goal of the firm, and explain why maximizing the value of the firm is an appropriate goal for a business. LG 3 Identify the primary activities of the financial manager. LG 4 Explain the key principles that financial managers use when making business decisions. Learning Goals (2 of 2) LG 5 Describe the legal forms of business organization. LG 6 Describe the nature of the principal–agent relationship between the owners and managers of a corporation, and explain how various corporate governance mechanisms attempt to manage agency problems. 1.1 Finance and the Firm (1 of 3) • What Is Finance? – Finance can be defined as the science and art of managing money – At the personal level, finance is concerned with individuals’ decisions about:  how much of their earnings they spend  how much they save  how they invest their savings 1.1 Finance and the Firm (2 of 3) • What Is Finance? – In a business context, finance involves:  how firms raise money from investors  how firms invest money in an attempt to earn a profit  how firms decide whether to reinvest profits in the business or distribute them back to investors – Managerial finance concerns the duties of the financial manager in a business 1.1 Finance and the Firm (3 of 3) • What Is a Firm? – A firm is a business organization that sells goods or services – Firms exist because investors want access to risky investment opportunities Matter of Fact (1 of 2) Firms Accelerate Dividends So That Shareholders Save on Taxes One way that firms can maximize the wealth of shareholders is by thinking carefully about the taxes their shareholders must pay on dividends. Tax cuts enacted by Congress in 2003 lowered the tax rate on most dividends received by shareholders to a modest 15%. However, the legislation contained a provision by which the tax cuts would expire in 2013 unless Congress specifically acted to renew them. Matter of Fact (2 of 2) With a political compromise to renew the tax cuts looking unlikely in the 2012 election year, many firms announced plans to accelerate dividend payments they had planned to make in early 2013 to late 2012. The Washington Post Company, for example, announced that on December 27, 2012, it would pay out the entire $9.80 per share dividend that it had planned to distribute in 2013. What was the stock market’s reaction to that announcement? Washington Post shares rose $5. By accelerating their dividend payments, companies such as Washington Post, Expedia, Inc., and luxury goods producer Coach, Inc., were increasing the wealth of their shareholders by helping them save taxes.