The Corporation and FinancialMarkets

Corporate Finance

Fifth Edition

Chapter 1

The Corporation and Financial

Markets

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Course Overview

•Maximize shareholder wealth (stock price) subject to

sustainable and ethical business practices consistent with

long-term objectives

•Examine investing and financing decisions made by

financial managers to increase firm value

•Apply financial analysis tools of time value of money and

risk management to main topics of course

•Valuation of bonds and stocks based on risk-adjusted

future cash flows

•Evaluate capital projects based on future cash flows

discounted by the weighted average cost of capital

Chapter Learning Objectives

•Discuss the division of corporate ownership into shares of

stock; evaluate the implications of that division for

corporate decision making.

•Evaluate the goal of maximizing the value of the firm

consistent with social and ethical considerations

•Identify potential conflicts of ownership vs. control issues

and the agency problem

•Compare and contrast the characteristics of shares that

are publicly traded and those that are not.

Textbook Example 1.1 (1 of 2)

Taxation of Corporate Earnings

Problem

You are a shareholder in a corporation. The corporation

earns $8 per share before taxes. After it has paid taxes, it