Solutions For Foundations of Finance, 10th Edition Keown (All Chapters included)
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Course
Finance
Institution
Finance
Complete Solutions Manual for Foundations of Finance, 10th Edition by Arthur J. Keown, John D. Martin, J. William Petty ; ISBN13: 9780135639382. Full Chapters included Chapter 1 to 17.
1. An Introduction to the Foundations of Financial Management.
2. The Financial Markets and Interest Rates.
3. ...
Foundations of Finance
10th Edition
by Arthur J. Keown
Complete Chapter Solutions Manual
are included (Ch 1 to 17)
** Immediate Download
** Swift Response
** All Chapters included
** Exercises and Problems
** EOC Solutions
, CHAPTER 1
An Introduction to the Foundations
of Financial Management
CHAPTER ORIENTATION
This chapter lays a foundation for what will follow. First, it focuses on the goal of the firm,
followed by the five principles that form the foundations of financial management and the role of
finance in business. The chapter then reviews the legal forms of business organization and
discusses the tax implications relating to financial decisions. Finally, the chapter discusses the
multinational firm and its role in finance.
CHAPTER OUTLINE
I. The Goal of the Firm
A. In this book, we will designate maximization of shareholder wealth to be the goal of the
firm, by which we mean maximization of the total market value of the firm’s common
stock.
B. We have chosen the goal of shareholder wealth maximization because the effects of all
financial decisions are included in this goal.
C. In order to employ this goal, we need not consider every price change to be a market
interpretation of the worth of our decisions. What we do focus on is the effect that our
decision should have on the stock price if everything were held constant.
II. Five Principles That Form the Foundations of Finance
A. Principle 1: Cash Flow Is What Matters. In measuring value, we will use cash flows
rather than accounting profits because it is only cash flows that the firm receives and is
able to reinvest. In addition, in making business decisions, we will concern ourselves
with only what happens as a result of that decision.
B. Principle 2: Money Has a Time Value. Almost all financial decisions involve
comparing money in different periods, perhaps investing today and receiving returns
later, or borrowing money today and paying it off later. A dollar received today is worth
more than a dollar received in the future because of the time value of money.
C. Principle 3: Risk Requires a Reward. There is a risk-return trade-off in finance—
typical risk-averse investors won’t take additional risk unless they expect to be
compensated with additional return. Almost all financial decisions involve some sort of
risk-return trade-off.
D. Principle 4: Market Prices Are Generally Right. In general, financial markets are
quick to impound new information into stock prices, and the prices tend to be correct.
E. Principle 5: Conflicts of Interest Cause Agency Problems. Self-interested managers
will not work for the owners’ best interest unless it is in the managers’ best interest as
well. The corporate agency problem is a result of the separation of ownership from the
decision makers of the firm. As a result, managers may make decisions that are not in line
with the goal of maximization of shareholder wealth.
F. The Essential Elements of Ethics and Trust. Ethical behavior is doing the right thing,
and ethical dilemmas are everywhere in finance. Ethical behavior is important in
financial management, just as it is important in everything we do. Businesses cannot
interact unless they trust each other. Unfortunately, precisely how we define what is and
is not ethical behavior is sometimes difficult. Nevertheless, we should not give up the
quest.
III. The Role of Finance in Business
A. Three basic types of issues are addressed by the study of finance.
1. What long-term investments should the firm undertake? This area of finance is
generally referred to as capital budgeting.
2. How should the firm raise money to fund these investments? The firm’s funding
choices are generally referred to as capital structure decisions.
3. How can the firm best manage its cash flows as they arise in its day-to-day
operations? This area of finance is generally referred to as working capital
management.
B. Why Study Finance?
Every area of business involves making choices that relate to the management of money
over time. A basic knowledge of finance is necessary even for nonfinance majors. An
understanding of finance is also important for management of personal finances.
C. The Role of the Financial Manager
Firms have many different organizational structures. Financial officers may fill any of the
following roles: vice president for finance, chief financial officer (CFO), treasurer, or
controller.
IV. The Legal Forms of Business Organization
A. Sole Proprietorships
1. Sole proprietorship: A business owned by a single individual, which has a minimum
amount of legal structure
2. The predominant form of business organization in the United States in total numbers
is the sole proprietorship.
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