【正文】 Learning Objectives: 1 1 After reading this chapter, students should be able to: ? Explain the career opportunities available within the three interrelated areas of finance. ? Identify some of the forces that will affect financial management in the new millennium. ? Describe the advantages and disadvantages of alternative forms of business anization. ? Briefly explain the responsibilities of the financial staff within an anization. ? State the primary goal in a publicly traded firm, and explain how social responsibility and business ethics fit in with that goal. ? Define an agency relationship, give some examples of potential agency problems, and identify possible solutions. ? Identify major factors that determine the price of a pany’s stock, including those that managers have control over and those that they do not. ? Discuss whether financial managers should concentrate strictly on cash flow and ignore the impact of their decisions on EPS. Chapter 1 An Overview of Financial Management LEARNING OBJECTIVES Lecture Suggestions: 1 2 Chapter 1 covers some important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned but not covered in class. We generally spend much of the first day going over the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we talk about the topics that will be covered in the course and the structure of the book. We also discuss briefly the fact that it is assumed that managers try to maximize stock prices, but that they may have other goals, hence that it is useful to tie executive pensation to stockholderoriented performance measures. If time permits, we think it’s worthwhile to spend at least a full day on the chapter. If not, we ask students to read it on their own, and to keep them honest, we ask one or two questions about the material on the first midterm exam. One point we emphasize in the first class is that students should get a copy of Blueprints and a financial calculator immediately, and bring both to class regularly. We also put copies of the various versions of our ―Brief Calculator Manual,‖ which in about 12 pages explains how to use the most popular calculators, in the copy center. We want students to start learning to use their calculators early, because in the past we have found that many students wait to learn to use their calculators at the same time they are trying to understand time value of money concepts. If students learn how to use the calculator early, they are less likely to get confused by time value concepts. We are often asked what calculator students should buy. If they already have a financial calculator that can find IRRs, we tell them that it will do, but if they do not have one, we remend either the HP10B or 17B. Please see the ―Lecture Suggestions‖ for Chapter 7 for more on calculators. DAYS ON CHAPTER: 1 OF 58 DAYS (50minute periods) LECTURE SUGGESTIONS Answers and Solutions: 1 3 11 The three principal forms of business anization are sole proprietorship, partnership, and corporation. The advantages of the first two include the ease and low cost of formation. The advantages of the corporation include limited liability, indefinite life, ease of ownership transfer, and access to capital markets. The disadvantages of a sole proprietorship are (1) difficulty in obtaining large sums of capital。 (2) unlimited personal liability for business debts。 and (3) limited life. The disadvantages of a partnership are (1) unlimited liability, (2) limited life, (3) difficulty of transferring ownership, and (4) difficulty of raising large amounts of capital. The disadvantages of a corporation are (1) double taxation of earnings and (2) setting up a corporation and filing required state and federal reports, which are plex and timeconsuming. 12 No. The normal rate of return on investment would vary among industries, principally due to varying risk. The normal rate of return would be expected to change over time due to (1) underlying changes in the industry and (2) business cycles. 13 An increase in the inflation rate would most likely increase the relative importance of the financial manager. Virtually all of the manager’s functions, from obtaining funds for the firm to internal cost accounting, bee more demanding in periods of high inflation. Usually, uncertainty is also increased by inflation, and hence, the effects of a poor decision are magnified. 14 Stockholder wealth maximization is a longrun goal. Companies, and consequently the stockholders, prosper by management making decisions that will produce longterm earnings increases. Actions that are continually shortsighted often ―catch up‖ with a firm and, as a result, it may find itself unable to pete effectively against its petitors. There has been much criticism in recent years that . firms are too shortrun profitoriented. A prime example is the . auto industry, which has been accused of continuing to build large ―gas guzzler‖ automobiles because they had higher profit margins rather than retooling for smaller, more fuelefficient models. 15 Even though firms follow generally accepted accounting principles (GAAP), there is still sufficient margin for firms to use different procedures. Leasing and inventory accounting (LIFO versus FIFO) are two of the many areas where procedural differences could plicate relative performance measures. 16 The management of an oligopolistic firm would be more likely to engage voluntarily in ―socially conscious‖ practices. Competitive firms would be less able to engage in such practices unless they were cost