Goal of the Firm 1) Profit Maximization? this goal ignores: a) TIMING of Returns (Time Value of Money Ch. 5) b) UNCERTAINTY of Returns (Risk- Ch. 6)

Financial statement analysis Are our decisions maximIzing shareholder wealth?

The Time value of money Compounding and Discounting Single Sums

Characteristics of Bonds o Bonds pay fixed coupon ( interest) payments at fixed intervals(usually every 6 months)and pay the par value at maturity

Capital Budgeting: the process of planning for purchases of long term assets。 ° example Suppose our firm must decide whether to purchase a new plastic molding machine for $125.000. How do we decide? will the machine be profitable? Will our firm earn a high rate of return on the investment?

Three Measures of a Project's Risk Project Standing Alone risk

Top Creators of shareholder value 1999 invested cost of MVA capital return capital Microsoft3282571095456.16%12.64 Gen elect285,320652981929911.92 Intel

2 concepts that enhance our understanding of risk... 1) Operating Leverage affects a firm's business risk. 2) Financial Leverage affects a firm's financial risk

Dilemma: Should the firm use retained earnings for: a) financing profitable capital inⅴ estments? b)Paying dividends to stockholders

Liquid asset management S CASH- motives for holding casha Transactions: to meet cash needs that arise from doing business. Precautionary: having cash on hand for unexpected needs Speculative: to take advantage of potential profit-making situations