Financial Decision making

Finance is concerned with  decisions involving the valuation of future cash flows and what affects these values. 

5 Factors influencing finance money time uncertainty tax Information

Corporate finance consists of: investments capital budgeting financing & management of working capital

Week 1

Investors: are usually concerned with risk and returns of their investments.Financial intermediaries (investment banks/brokers) act as the ‘middlemen’ between investors and companies, are primarily concerned with making profits

empirical anomalies: predictions of theories/models are contrary to what is actually seen in the market.

Investing in shares will provide a monetary return of dividends and capital gain. 

Sole Trader: Unincorporated - same legal identity of ownerAdvantages                                                Disadvantages Cheap & easy to set up                        1. Difficult to sell (finite life) Ownership and control concentrated      2. Business = owner..unlimited liability No requirement to publish accounts       3. Difficult to raise funds to grow

PLCs: Incorporated - separate legal identity to its owner established by shareholders, financed by share and debt capital with permanent share capital.Advantages                                                                                                      Disadvantages Ownerships can be transferred in selling of shares (infinite life)                       1. Difficult and expensive to establish Business is legally separate from its owners (limited liability)                         2. Tax disadvantages Funds can be raised publicly through equity and debt markets.                      3. Required to publish accounts

Notes to this diagram:•90% of LSE business is on the secondary market •70% of UK company shares are owned by institutions, •banks and financial conglomerates •omitted markets –forex market  –LIFFE

Stock exchange primary market:•IPOs: initial public offerings (new issue market) •rights issues: secondary/seasoned offeringsStock exchange secondary market:•Big-bang—27 October 1986      • ‘Big-bang II’—20 October 1997

•Three perspectives on finance: corporate  investor,  financial intermediaries & markets

REVISE ISSUE METHODS

REVISE ISSUE METHODS

Topic 1

Topic 2