Management and Organizational Studies 3311A/B Lecture Notes - Lecture 1: Capital Structure, Capital Budgeting, Preferred Stock

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3311A/B
• Professor: Jun Wang

Document Summary

Topic 1: corporate finance and governance (chapters 1, 14, 17) Total value of assets: total value of the firm to investors: Creditors- persons/institutions that buy debt from the firm. Value of the firm: v = b+s: v = value, b = value of debt (bonds, s = value of equity (shares) How do financial managers create value: the firm should try to buy assets that generate more cash than they cost, the firm should sell bonds, shares, and other financial instruments that raise more cash than they cost. To finance its planned investment, the firm sells debt and equity shares to participants in the financial markets. Cash flows from financial markets to the firm (a) Cash is invested in the investment activities of the firm by the management (b) Cash generated by the firm (c) is paid to shareholders and bondholders (f) Shareholders receive cash from the firm in the form of dividends or as share repurchases.