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Week 1 H/W Chapters 1& 2 Mini Case (Pg. 45) A. Corporate finance is important to all managers because it helps the managers to determine what projects or expenditures will and will not add value to the firm. It will allow managers to pick only the projects what will add value to the firm. It also helps the managers determine what each project will cost the firm. The managers will look to see if they have capital for those projects. The managers will prepare the capital needed from a combination of its own capital and outside sources (savers) to fund the projects that will add value to the firm. B. A business progresses from the sole proprietorship to partnership to a corporation ultimately. The advantages of a sole proprietorship…show more content…
People or entities that are in need of outside funds are called borrowers. Borrowers will have to go to people or entities that can supply them in the capital needed. These people are called savers. Capital can be transferred from the savers to the borrowers in one of three ways: direct transfer, indirect transfer, and transfers through financial intermediaries commonly banks. J. The interest rate is the price paid for borrowing money and the price of equity capital is dividends plus capital gains. The four most important fundamental factors that affect the cost of money or the general level of interest rate are production opportunities, time preferences for consumption, risk, and inflation. K. Some economic conditions that affect the cost of money are federal policies, fiscal deficits, business activities, foreign trade deficits, country risk, and the exchange rate. L. Financial securities are physical papers that work like a written contract when some borrows from someone. Some financial instruments are short-term loans, treasury bills, banker’s acceptances, commercial paper, CD, Eurodollar deposits, corporate bonds, and municipal bonds. M. Some financial institutions are commercial banks, savings and loans, saving banks, credit unions, mutual funds, pension funds, hedge funds, insurance companies, and private

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