The document discusses the goal of the firm and different legal forms of business. It examines whether the goal is purely profit maximization and if shareholder wealth maximization is the same as maximizing firm value and stock price. It also defines sole proprietorships, partnerships, limited liability companies, and corporations. Finally, it outlines how corporations interact with financial markets through primary and secondary markets as well as initial public offerings and seasoned new issues.

1. Goal of the Firm
1) Profit Maximization?
this goal ignores:
a) TIMING of Returns
(Time Value of Money - Ch. 5)
b) UNCERTAINTY of Returns
(Risk - Ch. 6)

2. Goal of the Firm
2) Shareholder Wealth
Maximization?
this is the same as:
a) Maximizing Firm Value
b) Maximizing Stock Price

3. Legal Forms of Business
1) Sole Proprietorship
 A business owned by a single individual.
 Owner maintains title to the firm’s assets.
 Owner has unlimited liability.
2) Partnership
 Similar to a sole proprietorship, except that there
are two or more owners.

4. 2a) General Partnership
 All partners have unlimited liability.
2b) Limited Partnership
 Consists of one or more general partners, who
have unlimited liability.
 One or more limited partners (investors) whose
liability is limited to the amount of their
investment in the business.
Legal Forms of Business

5. 2c) Limited Liability Company (LLC)
 Cross between a partnership and a
corporation.
 Owners have limited liability, but the firm
runs and is taxed like a partnership.
Legal Forms of Business

6. 3) Corporation
 A business entity that legally functions separate
and apart from its owners.
 Owners’ liability is limited to the amount of their
investment in the firm.
 Owners hold common stock certificates, and
ownership can be transferred by selling the
certificates.
Legal Forms of Business

7. The Corporation and Financial
Markets

8. The Corporation and Financial
Markets
Corporation

9. The Corporation and Financial
Markets
Corporation Investors

10. The Corporation and Financial
Markets
Government
Corporation Investors

11. The Corporation and Financial
Markets
cash
Government
Corporation Investors

12. The Corporation and Financial
Markets
cash
Government
securities
Corporation Investors

13. The Corporation and Financial
Markets
Government
cash
securities
Corporation Investors
Secondary
markets

14. The Corporation and Financial
Markets
Government
cash
securities
Corporation Investors
Secondary
markets

15. The Corporation and Financial
Markets
Government
cash
securities
Corporation Investors
Secondary
markets

16. The Corporation and Financial
Markets
cash Investors
Secondary
markets
Government
securities
Cash flow
Corporation

17. The Corporation and Financial
Markets
cash Investors
Secondary
markets
Government
securities
Cash flow
tax
Corporation

18. The Corporation and Financial
Markets
cash Investors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation

19. The Corporation and Financial
Markets
cash Investors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation
dividends,
etc.

20. The Corporation and Financial
Markets
 Primary Market

21.  Primary Market
 Market in which new issues of a security
are sold to initial buyers.
The Corporation and Financial
Markets

22.  Primary Market
 Market in which new issues of a security
are sold to initial buyers.
 Secondary Market
The Corporation and Financial
Markets

23.  Primary Market
 Market in which new issues of a security
are sold to initial buyers.
 Secondary Market
 Market in which previously issued
securities are traded.
The Corporation and Financial
Markets

24.  Initial Public Offering (IPO)
The Corporation and Financial
Markets

25.  Initial Public Offering (IPO)
 The first time the firm’s stock is sold to
the general public.
The Corporation and Financial
Markets

26.  Initial Public Offering (IPO)
 The first time the firm’s stock is sold to
the general public.
 Seasoned New Issue
The Corporation and Financial
Markets

27.  Initial Public Offering (IPO)
 The first time the firm’s stock is sold to
the general public.
 Seasoned New Issue
 A new stock offering by a firm that
already has stock that is traded in the
secondary market.
The Corporation and Financial
Markets

28. Financial Management Axioms
1) Risk - return trade-off.
2) Time value of money.
3) Cash - not profits - is king.
4) Incremental cash flows count.
5) The curse of competitive markets.
6) Efficient capital markets.
7) The agency problem.
8) Taxes bias business decisions.
9) All risk is not equal.