A. Direction: Read the statements carefully. Write TRUE if the statement is correct.Otherwise, write FALSE.1. Financial Management, also called corporate finance, focuses on decisions relating tohow much and what types of assets to acquire, how to raise the capital needed to purchaseassets, and how to run the firm to maximize its value._2. Corporations are similar to proprietorships in that they can be established relativelyeasily and inexpensively.3. One of the advantages of sole proprietorships is that the life of the business is limitedto the life of the individual who created it.4. A corporation is a legal entity created by its partners, and it is separate and distinctfrom its owners and managers.5. The firm's principal goal should be to maximize the wealth of its stockholders, whichmeans maximizing the value of its stock.6. Business Finance and Accounting are not the same things.7. The role of the financial manager is not to provide financial information but to makedecisions involving finance.8. Maximization of a company's profit is just the same as maximization of shareholders'wealth._9. In a corporation, the death or withdrawal of an owner affects the corporation's legalexistence.10. A financial manager's primary responsibility is to assess organizational efficiencythrough efficient resource allocation, acquisition, and management.

A. Direction: Read the statements carefully. Write TRUE if the statement is correct. Otherwise, write FALSE. 1. Financial Management, also called corporate finance, focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase assets, and how to run the firm to maximize its value.

A. Direction: Read the statements carefully. Write TRUE if the statement is correct. Otherwise, write FALSE. 1. Financial Management, also called corporate finance, focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase assets, and how to run the firm to maximize its value.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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a. Discuss the factors that are likely to influence the desired level of cash of a company b. Outline the advantages and disadvantages of using short term debt, as opposed to longterm debt, in the financing of working capitalc. Why cash flows rather than profits are most desirable in financial management? d. Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditorsWhat steps may be taken to overcome these conflicts?
We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might: Make shareholders as wealthy as possible by investing in real assets. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Choose high- or low-risk assets to match shareholders' risk preferences. Help balance shareholders' checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?
Discuss the factors that are likely to influence the desired level of cash of a company Outline the advantages and disadvantages of using short term debt, as opposed to long term debt, in the financing of working capital Why cash flows rather than profits are most desirable in financial management? Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditors
Finance managers in a corporation are responsible for THREE (3) main functions, namely the investment decisions, financing decisions as well as the cash management. These functions involve planning and forecasting of cash flows, control and coordination in order to ensure that resources are efficiently employed as well as dealings in the financial markets to raise capital. The decisions are made with the shareholder in mind which subscribes to the goal of the firm being shareholders’ wealth maximisation. Shareholders will agree that they are better off if management makes decisions that maximizes the value of their shares. However, delegation of authority for decision making from shareholders to managers creates the potential for agency problems which is ultimately detrimental to shareholders wealth. Justify favouring shareholders’ wealth maximisation over profit maximisation as the goal of a firm whilst accounting for the role of the firm in society. 2. Analyse the potential…
Finance managers in a corporation are responsible for THREE (3) main functions, namely the investment decisions, financing decisions as well as the cash management. These functions involve planning and forecasting of cash flows, control and coordination in order to ensure that resources are efficiently employed as well as dealings in the financial markets to raise capital. The decisions are made with the shareholder in mind which subscribes to the goal of the firm being shareholders’ wealth maximisation. Shareholders will agree that they are better off if management makes decisions that maximizes the value of their shares. However, delegation of authority for decision making from shareholders to managers creates the potential for agency problems which is ultimately detrimental to shareholders wealth. a. Justify favouring shareholders’ wealth maximisation over profit maximisation as the goal of a firm whilst accounting for the role of the firm in society.b. Analyse the potential…
What is the important question of corporate finance when a finance manager advises the company’s management to accept or reject a long-term investment project? What the finance manager needs to analyse to justify her/his adviceHow a corporation is different from a partnership in terms of owner, legal status, liabilities, life, regulation, access to capital, taxation and transfer?
A crucial role of financial managers is in making financial decisions and exercising control over finances in the organization. They make use of techniques like ratio analysis, financial forecasting, profit, and loss analysis, among others. Imaging you are the CFO of a multinational corporation and part of your daily tasks are the making of financial decisions, and one specific of those decisions will boost this quarter earnings but will impact stock market value. What should you do? Implement your decision or modify it to halter the potential impact of stock value?
Finance professionals make decisions that fall into three distinctive areas: corporate finance, capital markets, and investments. Below is a set of decisions made by finance professionals. Categorize the decisions according to the area of finance to which they belong. Decision Corporate Finance Capital Markets Investments Ethan must make a decision on how to cut costs so that his company can generate extra cash flow to acquire assets. Radford works for an investment bank and makes decisions about the sale of new common stock by ABCL Inc. Aakash works for a financial advising firm. He must create a financial plan and come up with a list of securities in which his client can invest. Aakash must make decisions regarding the investments that he should recommend to his clients to include in their portfolio.
Which of the following is NOT a way of stating the overriding goal of financial management? Select one: a. Maximising the value of the firm. b. Maximising the wealth of shareholders. c. Maximing the firm's share price. d. Maximising revenue.
Which of the following statements is true? a. Determining how day-to-day financial matters should be managed is not a function of financial managers. B. The goal of the firm is to maximize market share. C. Working capital management refers to identifying productive long-term assets the firm could acquire to maximize net benefits. D. Capital budgeting refers to identifying productive long-term assets the firm could acquire to maximize net benefits.
The financial needs of a business do not include the following? A. Investors must receive a very good rate of return from a financial institution. B. A business must meet its financial obligations and pay its debts C. To stay competitive, but a firm must finance future growth and development D. All of a business’s activities must be profitable
A common problem facing any business entity is the debt versus equity decision. When funds are required to obtain assets, should debt or equity financing be used? This decision also is faced when a company is initially formed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt are very different from those of equity as are the financial implication of using one method of financing as opposed to the other. Cherokee Plastics Corporation is formed by a group of investors to manufacture household plastic products. Their initial capitalization goal is $50,000,000. That is, the incorporators have decided to raise $50,000,000 to acquire the initial assets of the company. They have narrowed down the financing mix alternatives to two: All equity financing $20,000,000 in debt financing and $30,000,000 in equity financing No matter which financing alternative is chosen, the corporation expects to be able to generate a 10% annual return, before…

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