ECON 2560 Chapter Notes - Chapter 1: Cash Flow, Capital Structure, Good Governance

• School: University of Guelph
• Department: Economics
• Course: ECON 2560
• Professor: Bowr Nancy

Document Summary

Chapter 1: goals and governance of the firm. P(cid:396)odu(cid:272)i(cid:374)g goods a(cid:374)d se(cid:396)(cid:448)i(cid:272)es that (cid:373)eet thei(cid:396) (cid:272)usto(cid:373)e(cid:396)s" (cid:374)eeds. Also, must be good at finance- financing decisions and good investments. Capital budgeting decision: decisions about which real assets the firm should acquire; aka investment decisions. Fi(cid:374)a(cid:374)(cid:272)ial (cid:373)a(cid:374)age(cid:396)s" (cid:396)oles are identifying promising projects and decide how much to invest these project. O(cid:373)e a(cid:396)e i(cid:374)ta(cid:374)gi(cid:271)le (cid:894)r&d, a(cid:272)(cid:395)uisitio(cid:374)s of pate(cid:374)ts a(cid:374)d t(cid:396)ade(cid:373)a(cid:396)ks, et(cid:272) (cid:895) o(cid:396) ta(cid:374)gi(cid:271)le assets that fi(cid:396)(cid:373)s invest in. Capital investments generate return in the future; Needs to put a value on the uncertain future cash inflows- take account for amounts, timing, and risk of future cash flow. Required investment < project value = attractive financially. Financing decision: decision on how to raise the money to pay for investments in real assets. Equity financing: investors that put up cash in exchange for shares of future profits.