ACC501 Highlighted Handouts Set 2

LESSON 1 BUSINESS FINANCE

The Primary textbook for the course is:

Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGraw Hill Publishers, ISBN 0-07-121057-7

Reference books will be:

Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley Publishers Foundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGraw Hill Publishers

Course Contents

An overview of Financial Environment Financial Statements, Taxes and Cash Flows Time Value of Money and Discounted Cash Flow Valuation Valuation of Stocks and Bonds Net Present Value and other Investment Criteria Capital Investment Decision Risk and Return Cost of Capital Leverage and Capital Structure Raising Capital

Dividends

Finance: A Quick Look

Four Basic Areas

Business Finance

Addresses the following three questions: What long-term investments should the firm engage in? How can the firm raise the money for the required investments? How much short-term cash flow does a company need to pay its bills?

Deals with financial assets such as stocks and bonds. It covers the following issues: o Pricing Financial Assets o Associated Risks and Rewards o Determining best mixture of financial investment Career opportunities in investment o Stock Brokerage o Business Finance o Investments o Financial Institutions o International Finance

Investments

of new financial contracts

LESSON 2 WHY STUDY FINANCE?

Why Study Finance?

Marketing and Finance o Marketers have to work with budgets o Need to get greatest payoffs from marketing expenditures and programs o Cost and Benefit analysis of projects o So, finance is vital for: Marketing research Design of marketing and distributions channels Product pricing Accounting and Finance o Accountants are required to make financial decisions as well as understand the implications

o Financial analysts make extensive use of accounting information Management and Finance o Business Strategy is always disastrous if financial planning is not adhered to.

What is Business Finance?

In order to start any new business, the following issues become vital o What long-term investment should be taken on? o From where to get the long-term financing to pay for investment? Bring in other owners or borrow the money? o How to manage everyday financial activities?

The Financial Manager

To create value, the financial manager should: Try to make smart investment decisions. Try to make smart financing decisions.

Hypothetical Organization Chart

Business Finance and Financial Manager

Financial Management Decisions

Financial Management Decisions

Capital Budgeting The process of planning and managing a firm’s long-term investments Financial managers concern with how much, when and how likely is cash expected to receive Evaluating the size, timing and risk of future cash flows is the essence of capital budgeting

Capital Budgeting Decision

Capital Budgeting