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The basic types of financial management decisions and the role of the financial manager.
What Is Corporate Finance? Imagine that you were to start your own business. No matter what type you started, you would have to answer the following three questions in some form or another:
1. What long-term investments should you take on? That is, what lines of business will you be in and what sorts of buildings, machinery, equipment, and research and development facili- ties will you need?
2. Where will you get the long-term financing to pay for your investment? Will you bring in other owners or will you borrow the money?
3. How will you manage your everyday financial activities, such as collecting from customers and paying suppliers?
Th ese are not the only questions by any means, but they are among the most important. Cor- porate fi nance, broadly speaking, is the study of ways to answer these three questions.
Accordingly, we’ll be looking at each of them in the chapters ahead. Th ough our discussion focuses on the role of the fi nancial manager, these three questions are important to managers in all areas of the corporation. For example, selecting the fi rm’s lines of business (Question 1) shapes the jobs of managers in production, marketing, and management information systems. As a result, most large corporations centralize their fi nance function and use it to measure perform- ance in other areas. Most CEOs have signifi cant fi nancial management experience.
The Financial Manager A striking feature of large corporations is that the owners (the shareholders) are usually not directly involved in making business decisions, particularly on a day-to-day basis. Instead, the corporation employs managers to represent the owners’ interests and make decisions on their behalf. In a large corporation, the fi nancial manager is in charge of answering the three questions we raised earlier.