Corporate Finance

Why is corporate finance important to all managers?

Corporate finance is a specific area of finance dealing with the financial decisions corporations make and the tools as well as analyses used to make these decisions. The primary goal of corporate finance is to enhance corporate value, without taking excessive financial risks.

A corporation's management's primary responsibility is to maximize the shareholder's wealth which translates to stock price maximization.

Corporate finance provides the skills managers need in order to:

 Identify and select the corporate strategies and individual projects that add value to their firm- Capital Budgeting

 Forecast the funding requirements of their company, and devise strategies for acquiring those funds- Capital Structure

An appropriate capital structure is a critical decision for any business organization. The decision is important not only because of the need to maximize returns to various organizational constituencies, but also because of the impact such a decision has on an organization's ability to deal with its competitive environment.

Capital budgeting is the planning process used to determine a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research and development projects. Many formal methods are used in capital budgeting, including discounted cash flow techniques such as net present value, internal rate of return using the incremental cash flows from each potential investment, or project.

Describe the organizational forms a company might have as it evolves from a startup to a mayor corporation. List advantages and disadvantages of each form.

A startup company implies the companies that have been in busin...

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...res are not guaranteed and are only paid out at the discretion of the directors if the company has made a profit. Bond interest is legally payable regardless of the profit or loss, though of course if the company goes bankrupt, there will be no return.

Bond which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate. If a business wants to expand one of its options is to borrow money from individual investors. The company issues bonds at various interest rates and sells them to the public.

Equity prices are a better predictor than corporate bond prices, as they are widely available and more accurate. Equity is particularly important for margin accounts, through which minimum standards must be met. For example; an investor may prefer investing in equities instead of in bonds. This is also called equity security.