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Section I:

CORPORATE FINANCE AND FINANCIAL MANAGEMENT

Financial Management Decisions

Capital budgeting Long-term Investment Decisions

Initial investments Future cash flows (size, timing, risk)

Capital structure Long-term Financing Decisions Long term

Equity Long-term debt Financing costs

Working capital management Daily Financial Activities

Inventory? Credit policy? Short-term financing?

What type of decision it is?

Thursday, 25 Aug 2011 | 9:42 AM ET

This morning, Bank of America announced that BoA will issue 50,000 shares of preferred stock with a liquidation value of $100,000 per share to Berkshire in a private offering.

This is a capital structure decision of BoA. The company raised some equity capital through this private offering.

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What type of decision it is?

Published:Wednesday, 11 Jan 2012 | 1:44 AM ET, by Reuters

Dell intends to launch its first consumer tablet computer in late 2012, marking its entry into a hotly contested and increasingly crowded arena.

This is a capital budgeting decision of Dell.

What type of decision it is?

Whether to issue more long-term debt?

Capital Structure

Whether to purchase a new machine for the production line?

Capital Budgeting

Determine how much money should be kept in the companys checking account to maintain daily operation?
Working Capital Management

Whether to extend Net 30 to Net 45?

Working Capital Management

Goal of Financial Management

Ultimate goal Maximize owners wealth or firm value Plausible Measures Maximize sales or market share? Minimize costs? Maximize current profits? Total asset / total capital in the accounting book? Firm value is intrinsic and forward-looking
Any proxies? stock price, or market value of a company It is more difficult to estimate value of private firms

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Google to Acquire Motorola Mobility

MOUNTAIN VIEW, CA and LIBERTYVILLE, IL AUGUST 15, 2011

Google Inc. (NASDAQ: GOOG) and Motorola Mobility Holdings, Inc. (NYSE: MMI) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

Value of Manager

Thursday, Aug. 24, 2011

Apple Shares Slip After Steve Jobs' Resignation

Shares in Apple sank on Thursday, as the company faced a future without its founder and visionary Steve Jobs at the helm.
A total of 8.9% drop in Wednesday after market and Thursday pre-market

Value of Manager

Sept. 6th, 2011

Yahoo! board fires CEO Carol Bartz over the phone. Stock price jumps up more than 6% to 13.72 from 12.91 in the after market.

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Message from Google Executive Chairman Dr. Eric Schmidt

We take our responsibility to our stockholders very seriously. Our belief is that we maximize stockholder value by maintaining a long-term focus. Rather than thinking about ways in which we can create short-lived economic gains each quarter, we focus on serving our users and delivering the most relevant information as fast as we can. By providing the best user experience, we believe that we are building a company that will create more value, not just for our users, but ultimately also for our stockholders as well. In this note, I'd like to briefly mention several policies and steps we've taken to protect our stockholders' long-term interest, in accordance with corporate governance requirements.

Forms of Business Organization

simple complicated

Sole proprietor

Partnership (general & limited)

owned and managed by more than one person

Corporation

owned by one person, and managed by the same person unlimited liability taxed only once

separation of ownership and management

unlimited liability taxed only once

limited liability double taxation easy to transfer ownership (secondary market) easy to raise large amount of equity capital (primary market)

difficult to transfer ownership difficult to transfer ownership very limited equity capital more equity capital available, but still limited

The Agency Problem

Agency relationship
Principal hires an agent to represent his/her interests Stockholders (principals) hire managers (agents) to run the company

Agency problem
Conflict of interest between principal and agent

Agency costs
Managements decision may not be to the best interest of shareholders Monitoring costs, e.g., hiring outside accountant to audit

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Corporate Governance

Board of Directors
Elected by shareholders Hire and fire managers Direct intervention

Managerial compensation
Incentives can be used to align management and stockholder interests

Takeover threat