Intermediate Corporate Finance

Khoa Nguyen

FIN 390

01/18/2011

Prof. David Kesler

Writing Assignment 1

On the basis of financial management, operating a large company over many campuses is much different from running a local business at a small city. Financial issues always play a critical role in the survival of a corporate. Thus, an in-depth understanding of corporate finance is extremely important to all managers. This discipline provide them with both fundamental concepts and advanced financial theories such as the cost of capital, capital structure, dividend policy, and capital budgeting. Thanks to such necessary knowledge, managers can make accurate decision to lead businesses to prosperity and meet the primary objective of most corporations – value maximization.

In general, firms hold many responsibilities to the society at large, including their employees, customers, suppliers, and community. Apart from such illegal actions as fraudulent accounting, exploiting monopoly power, violating safety codes, and failing to meet environmental standards, stock price maximization is good for the society. Most members of society now have an important stake in the stock market, either directly or indirectly. Thus, management actions that maximize the stock prices also improve the quality of life for many ordinary citizens. Moreover, firms should behave ethically not only to conserve their own credibility but also to prosper in a stable long-term development. Any fraudulence can also lead to tragic results such as a plunge in stocks’ price, the imprisonment of managers and even the ruin of companies.

The value of any investment is determined by its ability to generate cash flows now and in the future. The three basic aspects of cash flows affect the value of any investment: Any financial asset, including a company’s stock is valuable only to the extent that it generates cash flows; the timing of cash flows matters-cash received sooner is better; and investors are averse to risk, so they will...