CORPORATE FINANCE EXERCISE
SESSION I: REVIEW ANSWER
CHAPTER 1. INTRODUCTION TO CF: 1. What are the nature and the objective corporate finance? * Corporate finance: any financial or monetary activity that deals with a company and its money. * Objective: maximize the profits, increase liquidity, enhance competition ability 2. Describe the financial relationships in a company.
Shareholders are considered partial owners of an organization, although business owners retain majority ownership. Employees work for companies and receive wages for their job performance, but do not own any part of the company unless they purchase stock or acquire it through benefits.
(Shareholder Rights
When investors buy shares of a company’s
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Employee Rights
Although different from shareholders' rights, employees also have rights within a company. Employees are protected from discriminatory acts by employers, such as decisions based on sex, age, gender, sexual orientation, race, religion and national origin. Most state laws grant employees the right to privacy. Employers are prohibited from sharing employees’ personal information and accessing employees’ personal possessions without approval. Employees can seek legal counsel if they feel their employer violated their rights under federal or state law. In some companies, employees may also own shares of their employer’s stock as part of their benefits package, making them shareholders as well. Employees who own shares possess both shareholder and employee rights.)
3. Describe the main decisions of financial management.
INVESTMENT DECISION a) Determine the total amount of assets needed by a firm hence closely tied to the allocation of funds b) Two type of investment decisions namely: * Capital Investment decisions: large sums, non routine, longer term, critical to the business like purchase of plant and machinery or factory * Working Capital Investment decisions: more routine in nature, short term but are also very critical decisions like how much and how long to invest in inventories or receivables
FINANCING DECISION a) After deciding on the amount and type of assets to buy, the financial manager needs to decide on
Identify three fundamental types of decisions that financial managers make and identify which part of the balance sheet each of these decisions affects. 1)Capital budgeting : Capital budgeting is the decision which is important in long-term. In a business, it is required to asses and evaluate potential capital or investments. That would leads a company to have maximized benefits. Building new facilities or expanding a training program are one of the examples. Long-term assets is categorized as this type of fundamental decision in balance sheet.
|b. |attempts to satisfy the costing objectives of both financial accounting and management accounting. |
Financial Management: “The process for and the analysis of making financial decisions in the business context.” (Cornett, Adair, & Nofsinger, 2016, p. 5).
The finance function and its relation to other decision-making areas in the firm; the study of theory and techniques in acquisition and allocation of financial resources from an internal management perspective.
CONTROL- Shareholders do not typically manage the company’s business. Instead a board of directors is elected. The board of directors has direct control over the company. A board member can also be a shareholder.
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Capital Investment decision is financial term is also known as Capital Budgeting. Its important goal is to upraise the firms profit by taking on a project at the suitable time.
Rights in the workplace is an important subject and each party should know his and her role and responsibilities in the workplace as well as his or her rights that align to that role. Employees have a right to privacy, fair compensation, freedom from discrimination and many others (Holley, Jennings, & Wolters). Employers have to ensure their company’s policies to do not infringe upon their employee’s rights with the workplace. Within organizations that have union representation, employee’s rights are usually monitored and enforced by the union representative. Employers also have rights to know certain information about their applicants to their employees, that does allow for discrimination against a protected class. It is important that
b. How would you estimate the appropriate discount rate to be used in valuing the cash flows?
The purpose of businesses is to maximize the market value of existing shareholders’ common stock.
48) Under capital rationing, given the choice among several equally attractive investments, the best tool to use is the __________.
E. record both income and expenses as soon as the amount for each can be ascertained.
Capital budgeting is very important in decision making for the financial manager of any firm. Most new projects take time in developing because of the research analysis required in opening a new addition to the company. The cash flow is a huge factor in making the decision of a project. For instance, capital expenditures require firms to outlay large sums of funds to initialize the project. Second, firms will need to formulate ways of generating and repaying these funds once they are initiate. Third, there must be a good since of timing and critical finance decision to make it all happen.
Virtually all general managers face capital-budgeting decisions in the course of their careers. Among the most common of these is the either/or choice about a capital investment. The following describes some general guidelines to orient the decision-maker in these situations.
The process of employee- ownership, involving all business activities and functions associated with exploitation and opportunities identification (Bygrave and Hofer, 1991; Shane and Venkataraman, 2000), have spawned considerable interests from practitioners and academics. In reality, the employee-ownership functionalities are processes and elements that are vital to the growth of a business organization and economy.