INTG 201 Lecture 9: INTG 201 - Lecture 9
18 Dec 2018
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Document Summary
Y = f(k,l,a: output is a function of capital, labor and technology. Investors have money, the firm takes the money and use it to create value and then redistributes the profit back. Give the money back or reinvest in their own operations: the firm wants to reinvest in order to grow (if it retains money it cannot grow) If the firm grows then the shareholders" share would grow which could be bigger than the dividends that it would have paid them: shareholders agree to give up the money if the firm can give them further value. Financing decision: risk return tradeoff, the higher the risk, the higher the return you will ask for in order to invest, risk = uncertainty of the outcome. Capital budgeting decision: the financial manager is concerned with, the size: how much money, the timing: in how much time will they be paid back, the risks associated with realizing the future benefits produced by the asset.
