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Funds …
Financial Manager
… from bank loan ?
… from papa or mama ?
…from venture capitalists ?
Financing decision
…from stock market ?
HOW MUCH ?
•How to invest spare cash for brief period (short term investment decision)
•How to raise cash for short term (short term financing decision)
I. Investment and Financing
Decision (cont’d)
Flow of cash between investors and the firm’s operation
4a Cash reinvested
CORPORATION
MINICASE:
When Enron and Worldcom failed in 2002, two of the
largest bankcrupcies ever, Peter was the shareholder
of Enron. He would:
Unlimited liability
Limited liability
Partnership
Sole Proprietorship
Limited Partnership
Personal income tax
II. Introduction to Corporation
(cont’d)
III. Goals of the Corporation
Manager
FINANCIAL ENVIRONMENT
Financial Markets
Financial Institutions
V. Importance of Financial
Markets and Institutions (cont’d)
Financial Markets
Fixed-income market
Commercial Bank
Insurance company
an organization financing
raise
Investor
V. Importance of Financial
Markets and Institutions (cont’d)
Financial intermediaries (cont’d)
• Cash retained and reinvested is cash saved and invested on behalf of the
firm’s shareholders
VII. Functions of Financial
Markets and Intermediaries
• Liquidity
• Information providing
VIII. Cost of Capital
Cost of
Capital
Financial Manager
Rate (%)
15%
• Cost of capital • Investment project’s rate of return