Corporate Finance, Ch. 1: Introduction to Corporate Finance

1. Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?

• Not-for-Profit Firm Goals Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?

• Page 19Goal of the Firm Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.

Corporate Finance, Ch. 2: Financial Statements and Cash Flow

• Cash Flows How do financial cash flows and the accounting statement of cash flows differ? Which is more useful for analyzing a company?

• Book Values versus Market Values Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market values? Why or why not?

6.  Cash Flow from Assets Why is it not necessarily bad for the cash flow from assets to be negative for a particular period?

Corporate Finance, Ch. 3: Financial Statement Analysis and Financial Models

• Asset Utilization and EFN One of the implicit assumptions we made in calculating the external funds needed was that the company was operating at full capacity. If the company is operating at less than full capacity, how will this affect the external funds needed?

• Comparing ROE and ROA Both ROA and ROE measure profitability. Which one is more useful for comparing two companies? Why?

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