Finance 1
Chapter 1
Chapter 1: The Corporation
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Reproduce the organizational chart of a corporation and the financial functions
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Evaluate the objective of shareholder value maximization including limits: principal agent
problems and externalities
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Understand the implications and remedies of separation of ownership and control in corporations:
agency problems like excessive risk, partial solutions like executive compensation
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Understand bankruptcy and ownership claims of debt and equity holders
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Describe how stocks are traded, bid ask spread, role of market makers
Finance 1
Chapter 1
Finance 1
Chapter 1
Three main tasks of a financial manager
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Investment decision: what investments should make, weigh the costs and benefits of all
investments and projects, decide which of them qualify as good uses of the money stockholders
have invested in the firm
Financing decision: how to pay for the investments
Cash management: make sure they have enough money to run the day-to-day obligations
The agent problem: when a manager starts working in their own interest instead of the interest of stock
owners.
Finance 1
Chapter 1