Professor Rosilyn Overton | Chapter 1 – Introduction to Financial Management
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Chapter 1 – Introduction to Financial Management

Special Assignment!

At the web site, in the Chapter 1 material, is a discussion of “Why Shareholder Value” by the former chairman of Coca Cola, Roberto Goizueta. Read his essay, then comment on the concept of Good Deeds vs. Good Work. Your answer should be about 100 words, and is due with the Chapter 1 homework, the second class. E-mail to

This is the “why am I taking this course when I am a marketing major” chapter. Its purpose is to give you an overview of how finance fits in with other business disciplines such as marketing, accounting, and management. Because of that overall goal, the individual sections are a bit of a hodgepodge.


The role of the financial manager and the decisions that he or she has to make are explored, including the extremely timely subject of the agency problem (Think about Enron, Tyco and WorldCom) and the relationship between shareholders and management.


The various forms of a business organization are reviewed and there is a brief discussion of the financial markets and how they affect the corporation.



When you finish your study of this chapter, you should know:


  1. The three main areas of concern of business finance.
  2. The goal of financial management.
  3. The advantages and disadvantages of the various forms of business organization.
  4. What agency problems are and what some of the measures that can and have been taken to resolve these problems.

The following are terms that you should be able to define perfectly when you finish studying this chapter. Make your flash cards and take them with you, reviewing them whenever you have a chance. You will be a happy test taker!


Key terminology:

Agency problem
Agency relationships
Auction market
Business Finance
Capital Budgeting
Capital Structure
Corporate Finance
Corporation Profit Maximization
Dealer market
Financial Institutions

Financial Manager
Goal of Financial Management
International Finance
Primary market
Secondary market
Sole Proprietorship
Working Capital Management

Helpful Notes

Don’t be so anxious “to get the Chapter read” that you ignore the tools the authors have given you.  At the beginning of each chapter, there is a list of the major points that you  are expected to understand when you finish.  Keeping those  goals in mind as you read will help you get the most out of your reading.

If you can truly explain, without stumbling or hesitation, each of the terms in the Key Terminology list, you are on your way to mastering the material.