FIN 300
Introduction to Corporate Finance
Mike Farrell
University of Kentucky
Summer 2017
FIN 300
Agenda for Today
June 8 2017
- Welcome
- Syllabus
- Introduction
- Math Review
Introduction
What is a corporation?
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What is a corporation?
- Form of economic organization
- Major impact on our society
- Half of U.S. employment
- Almost every good we consume involved a corporation at some point in its production
What is corporate finance?
- Analysis of investments and financial management
- Capital Budgeting
- Capital Structure
- Working Capital Management
Capital Budgeting
- The investment decision making process
- Not all projects are possible
- Which projects will should we choose?
- What is the risk of these projects?
- How do we create value for the shareholders?
Capital Structure
- Long term financing questions
- How do we pay for the projects / investments?
- Debt vs Equity
Working Capital Management
- How do we keep the day-to-day operations running smoothly?
- How much cash do we need to hold?
- Liquidity in the short run
Business Organizational Forms
- Sole Proprietorship
- Partnership
- Multiple entities together
- Limited and unlimited liability
- Corporation
- Distinct legal entity
- Limited liability
If corporations are persons, can they be pursued for crimes?
Yes.
See Fine and Punishment (The Economist, 2012)
If individuals in a corporation benefit from their actions that may hurt shareholders or other stakeholders, could this be a problem?
Yes, it could be.
This is an agency problem.
Agency
Agency Relationships
- Occur everywhere in business
- Principal hires agent
- Agent is paid
- Costs and benefits may not allign
Examples of Principal / Agent
- Car owner / Mechanic
- Patient / Doctor
- Student / Teacher
- Stock owner / CEO
The Agency Problem
- Conflict of interest
- Easier to do a poor job and get paid
- Solutions are not perfect
- Incentive allignment
- Executive pay
Summary
- Corporation - economic organization
- Maximize wealth
- Various organizational forms
- Agency