Copyright © 2015 by the McGraw-Hill Education (Asia). All rights reserved.

Key Concepts and Skills

Have a good understanding of:
The basic types of financial management
decisions and the role of the financial manager
The goal of financial management
The financial implications of the different forms
of business organization
The conflicts of interest that can arise between
owners and managers

17-2
Chapter Outline RWJ website
1.1 Finance: A Quick Look
1.2 Business Finance and The Financial
Manager
1.3 Forms of Business Organization
1.4 The Goal of Financial Management
1.5 The Agency Problem and Control of the
Corporation
1.6 Financial Markets and the Corporation

17-3
Basic Areas Of Finance
1. Corporate finance = Business Finance
2. Investments
3. Financial institutions
4. International finance

Return to
Quick Quiz 17-4
Investments

17-5
Financial Institutions

17-6
International Finance

17-7
Basic Areas Of Finance
INTERNATIONAL

DOMESTIC
Corporate Financial
Investments
Finance Institutions

17-8
Why Study Finance?

17-9
Business Finance

17-10
17-11
Corporate Organization Chart
Figure 1.1

17-12
Financial Management Decisions

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Quick Quiz 17-13
Forms of Business Organization
Three major forms in the United States
Soleproprietorship
Partnership
General

Limited

Corporation
S-Corp

Limited liability company

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17-14
Quick Quiz
 Business owned by one person
Advantages Disadvantages
Easiest to start Limited to life of owner
Least regulated Equity capital limited to
Single owner keeps all of owner’s personal wealth
the profits Unlimited liability
Taxed once as personal Difficult to sell
income ownership interest

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 Business owned by two or more persons
Advantages Disadvantages
Two or more owners Unlimited liability
More capital available  General partnership
Relatively easy to start  Limited partnership

Income taxed once as Partnership dissolves

personal income when one partner dies or
wishes to sell
Difficult to transfer
ownership
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A legal “person” distinct from owners and a
resident of a state
Advantages Disadvantages
Limited liability Separation of ownership
Unlimited life and management
Separation of ownership (agency problem)
Double taxation (income
and management
Transfer of ownership is
taxed at the corporate
rate and then dividends
easy
taxed at personal rate,
Easier to raise capital
while dividends paid are
not tax deductible)
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International Corporate Forms

17-18
Return to 17-19

Quick Quiz
Goal Of Financial Management
Does this mean we should do anything
and everything to maximize owner
wealth?
Outsourcing?
Off-shoring?
Enron?
Corporate support of charities?

17-20
17-21
The Agency Problem

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Quick Quiz
Do Managers Act in the
Shareholders’ Interests?

17-23
Example: Work the Web
The Internet provides a wealth of information about
individual companies
“finance.yahoo.com” is an excellent site
Example:
Southwest Airlines (LUV)
Harley- Davidson (HOG)
Starwood Hotels & Resorts (HOT)
American Express (AXP)

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Cash Flows Between the Firm and the Financial
Markets
Figure 1.2

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17-26
Quick Quiz
What are the four basic areas of finance? (Slide 1.4)
What are the three types of financial management
decisions, and what questions are they designed to
answer? (Slide 1.13)
What are the three major forms of business
organization? (Slide 1.14)
What is the goal of financial management? (Slide
1.19)
What are agency problems, and why do they exist
within a corporation? (Slide 1.22)
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Chapter 1
 END 17-28