Managerial Finance

?ln"u. frnotoer Quufuarrt p nauga O Part I The Company and Its Environment

g" Mutual fund; money rnarket fund h. Physical location exchanges; computer/teiephone networks i. Open outcry auction; dealer market; electronic communications nelrvork (E,CN) j. Production opporlunities; tirne preferences tbr consumption k. Foreign trade deficit

r, -'' What are the three principal forms of business organization? What are the advantages and disadvantages of each?

:i :,, What is a firm's fundamental, or intrinsic, value? What might cause a firm's intrinsic vaiue to be different from its actual market value?

i ' il Edmund Enterprises recently made a large investment to upgrade its technology. Although these improvements won't have much of an impact on performance in the short run, they are expected to reduce future costs signiticantly. What impact will this investment have on Edmund Enterprises's earnings per share this year? What impact might this investment have on the company's intrinsic value and stock price?

,I ':'i f)escribe the ways in which capital can be transferred from suppliers of capital to those who are demanding capital.

what are finar-rcial intermediaries, and what economic functions do they perforrn? is an initial public offering an example of a primary or a secondary market transaction? Differentiate belween dealer rnarkets and stock markets that have a physical location.

Identi{, and briefly compare the two leading stock exchanges in the United States todav.

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Assume that you recentiy graduated and have just reported to work as an investment advisor at the brokerage firm of Balil< and Kiefer Inc. One of the firm's clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis plaver u,ho would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she rvould like to under- stand in general terms what will happen to irer money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DeilaTorre.

a. Why is corporate finance important to all managers? b. Describe the organizational forms a company rnight have as it evolves from a start-up

to a major corporatir:rn. List the advantages and disadvantages of each form. c. How do corporations go public and continue to grow? what are agen(:y problems?

What is corporate governance? rJ. What should be the prlmary objective of managers?

(1) Do firms have any responsibilities to society at large? (2) Is stock price maximization good or bad for society? (3) Should firms behave ethically? What three aspects of cash flows affect the value of any in1,s51m.r11 What are free cash flows? What is the tveighted ayerage cost of capital? How do free cash flows and the iveighted average cost of capital interact to determine a firm's value?

f. ob' h.