Lesson 6 - Lecture Slides Flashcards
finance
the science or study of the management of funds
What is the goal of the firm?
to create value for the firm’s shareholders by MAXIMIZING the price of the existing common stock (income, dividends) through making good decisions
What is the role of management?
serves as an arbitrator and moderator between conflicting interest groups or stakeholders and objectives;
Creditors, managers, employees and customers hold _____ claims against a company
contractual
Shareholders hold _____ claims against a company
residual
What are the 5 different interest groups that have claims on a company?
Banks, shareholders, employees, management, customers
corporate governance
the system of rules, practices, and processes by which a company is directed and controlled
what does corporate governance involve?
balancing the interests of a company’s many stakeholders, i.e. SHs, mgmt, customers, suppliers, financiers, gov’t and the community
cost of capital
the minimum required rate of return; avg rate of return company must pay to long term creditors and SHs for use of their funds
principal-agent problem
managers may make decisions that are not in the best interest of shareholders
dispersed ownership
ownership is spread out and they don’t know each other; BIG conflict of interest bc ppl who really have control is MGMT and mgmt is only going to serve mgmt!
real assets
tangible things owned by persons and businesses i,.e. res structures n property, major appliances n automobiles, office towers, factories, machines n equip
financial assets
what one individual has lent to another i.e. consumer credit, loans, mortgages
debentures
unsecured debt. backed only by the general assets of the issuing corporation.
secured debt (mortgage debt)
secured by specific assets
