BSNS 114 – Financial Decision Making

BSNS 114: Financial Decision Making

Course Overview
  • Structure:
  • 3 lectures and 1 tutorial weekly
  • 4 quizzes and 1 midterm exam
  • Final exam weightage TBD
  • Important Dates:
  • Quiz 1: Week 3-4
  • Midterm: April 10, 2025 (Week 7)
  • Final: 55% if higher than midterm (plussage)
  • Passing criteria: Overall weighted score > 50%
Course Expectations
  • Preparation:
  • Skim readings before class to improve understanding.
  • Note-taking during lectures is crucial for retention (up to 80% compared to 10% without).
  • Engage in discussions with study groups.
Key Topics
  • Financial Management Objectives:
  • Maximize the value of the business.
  • Focus on investment decisions (Capital Budgeting), financing decisions, and working capital management.
  • Personal Finance Importance:
  • Essential for managing personal finances, such as loans, mortgages, and investments.
Financial Decision Making: Key Components
  • Investment Decisions:
  • What assets to purchase for business growth (examples include equipment and property).
  • Financing Decisions:
  • How to raise capital through debt (fixed payments) or equity (ownership claims).
  • Working Capital Management:
  • Address day-to-day financial matters affecting cash flow, e.g., managing current assets/liabilities.
Forms of Business
  • Sole Proprietorship:
  • Owned and managed by one person, simple and easy to form, but with unlimited liability.
  • Partnership:
  • Owned by two or more persons, divides profit but may have challenges with ownership transfer.
  • General vs Limited partnerships: General partners manage and bear liability, while limited partners only invest.
  • Corporation:
  • Separate legal entity, limited liability for owners, but more regulatory complexities.
  • Agency problems may arise when managers do not align with shareholders' interests (agency costs).
Corporate Governance Issues
  • Agency Problem:
  • Conflicts between shareholders (principals) and managers (agents) where managers may act against shareholder interests.
  • Example: FTX collapse due to mismanagement of funds and deceptive practices.
  • Disciplinary Mechanisms:
  • Shareholders meeting to evaluate management performance, board oversight, and performance-based compensation can mitigate agency problems.
Financial Markets
  • Primary vs Secondary Markets:
  • Primary Market: Firms sell new securities to investors (e.g., IPO).
  • Secondary Market: Existing securities are traded amongst investors.
  • Functions of Financial Markets:
  • Allocate capital, enable government financing, facilitate investment needs, providing liquidity to investors.
Exam Preparation Tips
  • Attend all lectures to avoid losing points on exams.
  • Regularly review notes and discuss with peers.
  • Practice past quiz and exam questions.
  • Always reach out with questions for clarification.