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Important Business
Activities
Production
Marketing
Finance
Corporate
Finance
defined
as
the
management of flow of funds in a firm and
its deals with the financial decision making
of the firm.
Finance Functions
Finance functions or decisions can be divided as
follows
Long-term financial decisions
Long-term
asset-mix
or
investment
decision
or
capital
budgeting decisions.
Capital-mix or financing decision or capital structure and
leverage decisions.
Profit allocation or dividend decision
management.
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FINANCE FUNCTIONS
Investment decision (those relating to resource
allocation)
Liquidity decision (those relating to investment in
current assets)
Financing or capital structure decision (those
covering the financing of these investments)
Dividend decision (those determining how much
cash be taken out and how much reinvested)
Investment Decisions
Capital Budgeting
Decisions
Includes
alternative options,
To buy an asset or to get it on lease,
To produce a part of the final product or to
Liquidity Decision
Financing Decisions
Dividend Decision
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Profit Maximization
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Fundamental
objectivemaximize
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the
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Risk-return Trade-of
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Overview
Managers
may
perceive
their
role
as
reconciling
conflicting
Managers may avoid taking high investment and financing risks that
may otherwise be needed to maximize shareholders wealth. Such
satisfying behaviour of managers will frustrate the objective of
SWM as a normative guide.
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Agency Costs
Agency
costs
include
the
less
than
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Corporate Governance
Four pillars of CG
Transparency
Full disclosure
Independent monitoring