Corporate Finance Flashcards, test questions and answers

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What is Corporate Finance?

Corporate finance is the area of finance that deals with the financial decisions businesses make and the tools and analysis used to make those decisions. Corporate finance includes activities such as planning for capital investments, managing corporate liquidity and cash flow, evaluating financing options, setting dividend policies, determining risk exposure, and developing strategies for mergers & acquisitions (M). The main objective of corporate finance is to maximize shareholder value by managing a company’s capital structure in such a way that provides adequate returns while minimizing risk. This means corporations must carefully consider how much debt or equity they should use when making an investment. When making these decisions, corporations must factor in their cost of capital (the rate of return required by investors) as well as their expected return on investment (ROI). Corp orate finance also involves understanding the impact of taxes on business activities. Firms must carefully manage their tax burden to ensure they remain profitable and competitive. Additionally, companies must consider how government regulations affect their decision-making process for instance, certain industries may require specialized permits or licenses in order to operate legally. Understanding how taxes and regulations influence businesses can help managers make decisions that minimize risk while maximizing returns. Finally, corporate finance includes analyzing potential opportunities for growth through M&A activities or other forms of strategic alliances. By understanding a company’s current financial position relative to its peers within its industry sector and analyzing potential opportunities for expansion through mergers & acquisitions or joint ventures with other firms, companies can identify ways to increase shareholder value while minimizing risks associated with new investments.