The Role of Entreprenuership

Topics: Finance, Bond, Investment Pages: 16 (3463 words) Published: August 29, 2013
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Corporate Finance
MBA-III ___________________________________________________

Introduction to Corporate Finance
Finance:
Finance is an art and science of managing money. It is concerned with resource allocation as well as resource management and investment. Simply finance deals with matters related to money and the markets.

Functions of corporate finance:
• Planning and analyzing • Acquiring • Utilization of funds All the above functions are performed to achieve the desired goals.

Real Assets:
Assets used to produce goods and services are called real assets. Real assets can be tangible or intangible.

Financial Assets:
Financial assets are the claim against the firm’s real assets and its income.

Investing Decisions:
The decisions regarding the investment in tangible or intangible assets are called investment decisions. Investment decisions are concerned with capital budgeting in which the investment projects are evaluated by capital budgeting techniques. The following are the capital budgeting techniques. 1. 2. 3. 4. 5. Payback Period (PBP). Net Present Value (NPV). Internal Rate of Return (IRR). Accounting Rate of Return (ARR). Profitability Index (PI).

A number of different available investment projects are evaluated through the capital budgeting process. The capital budgeting process is used to select the most profitable project(s).

The Capital Budgeting Process:
1. Generating Project Proposal.
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The project proposal can be generated either by internal sources i.e. R&D department, or external sources i.e. suppliers, government. 2. Estimating Cash Flows. 3. Evaluating Project Proposal. The project proposal is evaluated keeping in view the certainty and uncertainty of the situation. 4. Selection: 5. Implementing and Reviewing.

Financial Decisions:
The decisions regarding the acquisition of funds are called financial decisions. A firm acquires funds through the use of: i. ii. iii. Short-term financing. Long-term financing. Equity financing.

Capital Structure:
The combination of a firm’s long-term debts and equity financing is called capital structure.

Financial Markets:
Financial markets are the markets where financial assets are traded.

Types of Financial Markets:
1. Money Market:
The market where short-term financial assets are traded is called Money Market. E.g. T. bills, T. Notes, Commercial Paper, Bankers Acceptance (BA), Federal Agency Issue.

2. Capital Market:
The market where long-term financial assets are traded is called capital market. E.g. Bond, Common Stock, Preferred Stock.

Types of Markets with Respect to Issue: 1. Primary Market:
The market where new securities are traded for the first time is called Primary market. E.g. Bank. Abdul Wali Khan University Mardan AIMS Mardan

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IPO – Initial Public Offering: IPO means the offering of new securities to the general public for the first time. SEO – Seasonal Equity Offering: SEO means the ongoing offerings of new securities after IPO to the general public.

2.

Secondary Market:
The market where already issued securities are traded is called secondary market. A strong secondary market for a particular security enhances the efficiency of the primary market for that security. E.g. Stock Exchange.

Financial Manager:
The individual charged with financial management is called financial manager.

Functions of Financial Manager:
• • • • Planning and analyzing Acquiring Utilization of funds Interaction with other Mangers Planning Acquiring Utilization

Risk and Return (Trade-off)

Market Price/ Share

Shareholder Wealth Maximization

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Finance

Treasurer
Capital Budgeting Cash Management Credit Management Dividend...
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