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Introduction to financial management ppt @ mba
 

Introduction to financial management ppt @ mba

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Introduction to financial management ppt @ mba

Introduction to financial management ppt @ mba

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    Introduction to financial management ppt @ mba Introduction to financial management ppt @ mba Presentation Transcript

    • Introduction to Financial Management
      • Forms of Businesses
      • Goals of the Corporation
      • Stock Prices and Intrinsic Value
      • Some Recent Trends
      • Conflicts Between Managers and Shareholders
    • Alternative Forms of Business Organization
      • Proprietorship
      • Partnership
      • Corporation
    • Proprietorships & Partnerships
      • Advantages
        • Ease of formation
        • Subject to few regulations
        • No corporate income taxes
      • Disadvantages
        • Difficult to raise capital
        • Unlimited liability
        • Limited life
    • Corporation
      • Advantages
        • Unlimited life
        • Easy transfer of ownership
        • Limited liability
        • Ease of raising capital
      • Disadvantages
        • Double taxation
        • Cost of set-up and report filing
      • Double Taxation of Corporate Profits/Income
      • Assume Corporate and Individual Tax = 50%
      • Earnings Before Taxes $100 EBT
      • ($50) Corporate Tax
      • Net Income After Tax $50 NIAT (Profits)
      • Assume 100% Div. Payout $50 Dividend Income
      • ($25) Personal Income Tax
      • $25 After-tax Income
      • New Tax Code (2003): Max. Tax Rate of 15% for DIV
      • Earnings Before Taxes $100 EBT
      • ($50) Corporate Tax
      • Net Income After Tax $50 NIAT
      • Assume 100% DIV $50 Dividend Income
      • ($7.50) Income Tax @ 15%
      • $42.50 After-tax Income
      • Corporate Income Taxes – 2006
      • More than But not more than Then the tax is of the amount over
      • $0 $50,000 15% $0
      • $50,000 $75,000 $7,500 + 25% $50,000
      • $75,000 $100,000 $13,750 + 34% $75,000
      • $100,000 $335,000 $22,250 + 39% $100,000
      • $335,000 $10 million $113,900 + 34% $335,000
      • $10 million $15 million $3,4 million + 35% $10 million
      • $15 million $18.33 million $5.15 million + 38% $15 million
      • $18.33 million --35% --
      • 2005 federal personal income tax rates Ordinary taxable income for use in filing returns due April 15, 2006.
      • Tax rate Single filers Married filing jointly Married filing separately Head of household
      • 10% Up to $7,300 Up to $14,600 Up to $7,300 Up to $10,450
      • 15% $7,301 - $29,700 $14,601 - $59,400 $7,301 - $29,700 $10,451 - $39,800
      • 25% $29,701 - $71,950 $59,401 - $119,950 $29,701 - $59,975 $39,801-$102,800
      • 28% $71,951 - $150,150 $119,951 - $182,800 $59,976 - $91,400 $102,801 - 166,450
      • 33% $150,151 - $326,450 $182,801 - $326,450 $91,401 - $163,225 $166,451 - $326,450
      • 35% $326,451 or more $326,451 or more $163,226 or more $326,451 or more
    • Alternative Forms of Business Organization
      • Sole proprietorship – 73% of firms, but only 7% of sales revenue
      • Partnership – 7% of firms, 5% of sales
      • Corporation – 20% of firms, but 88% of sales revenue.
    • Financial Goals of the Corporation
      • The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price.
        • Do firms have any responsibilities to society at large?
        • Is stock price maximization good or bad for society?
        • Should firms behave ethically?
    • Factors that affect stock price
      • Projected cash flows to shareholders
      • Timing of the cash flow stream
      • Riskiness of the cash flows
    • Stock Prices and Intrinsic Value
      • In equilibrium, a stock’s price should equal its “true” or intrinsic value.
      • To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate from its intrinsic value.
      • Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run.
    • Determinants of Intrinsic Value and Stock Prices (Figure 1-1)
    • Some Important Trends
      • Recent corporate scandals have reinforced the importance of business ethics, and have spurred additional regulations and corporate oversight.
      • The effects of changing information technology have had a profound effect on all aspects of business finance.
      • The continued globalization of business.
    • Financial Management Issues of the New Millennium
      • The effect of changing technology
      • The globalization of business
      • 1. Improvements in communications and transportation – lower transactions cost
      • 2. Increased power of consumers – more choice, consumer sovereignty
      • 3. Increased cost of developing new products – global markets spread fixed costs over more units
      • 4. MNCs must be able to shift production globally to take advantage of cost efficiencies.
    • Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations, 2001 Company % of Revenue from overseas % of Net Income from overseas Coca-Cola 60.8 35.9 Exxon Mobil 69.4 60.2 General Electric 32.6 25.2 General Motors 26.1 60.6 IBM 57.9 48.4 JP Morgan Chase & Co. 35.5 51.7 McDonald’s 63.1 61.7 Merck 18.3 58.1 3M 52.9 47.0 Sears, Roebuck 10.5 7.8
    • Conflicts Between Managers and Stockholders
      • Managers are naturally inclined to act in their own best interests (which are not always the same as the interest of stockholders).
      • But the following factors affect managerial behavior:
        • Managerial compensation plans
        • Direct intervention by shareholders
        • The threat of firing
        • The threat of takeover
    • Responsibility of the Financial Staff
      • Maximize stock value by:
        • Forecasting and planning
        • Investment and financing decisions
        • Coordination and control
        • Transactions in the financial markets
        • Managing risk