1. Explain why market prices are useful to the financial manager. The financial manager is responsible for giving financial advice and support to clients and colleagues that will enable them to make good business decisions. Particular work environments differ considerable and involve both public and private sector organizations such as retailers, corporations, financial institutions, charities, and even small manufacturing companies and schools (Financial Manager, 2011). Primarily, financial managers look at the market price in maximizing the value of the firm. The market value is the present value of the net cash flow divided buy the risk. Investors consider the firm’s future and present earnings, disadvantages or risks and other factors that will influence a firm prior to deciding to create an investment decision and the market price of the stock that will reflect all the information considering these factors (Arain, 2011). 2. Discuss how the Valuation Principle helps a financial manager make decisions. Valuation Principle is the analysis between values of benefits and costs. This gives an understanding for creating decisions in a company. When valuing a company in a competitive market. Its good price will always be the basis rather than the preference or opinion of a person or a firm. Hence, the valuation principle is the commodity or asset to the investors or firm that is recognized by the competitive market. The financial manager will weigh the costs and benefits of decision in utilizing that market price. Of course, if the benefits exceed the costs, the decision made by the financial manager will increase because of the firm’s market value (Fundamentals of Corporate Finance, 2011). 3. Describe how the Net Present Value is related to cost-benefit analysis. Cost benefit analysis is employed in order to evaluate projects. This gives the researcher or planner a set of values that is useful enough in determining the feasibility of a project from an economic point of view. Generally, it is simple and the results are easy to comprehend. Costs are associated with the company that is commonly much easier to measure and defined compared to benefits. This involves the operating and investment costs. Operating costs involves the materials needed to maintain an operation whilst the investment costs are incurred in planning and design such as the materials, labor, and construction costs. Benefits are, on the other hand, difficult to measure specifically for transport projects. These are diffused and extensive (Slack and Rodrigue, 2011). The relationship of net present value does not reside particularly on the cost-benefit per se rather it is viewed as part of the valuation principle. Net Present Value (NPV) is the difference concerning the present value of the project or the benefits of the investment compared to the present cost values. When the NPV positive for a project or investment opportunity, this means that the project can be implemented. It only means that the firm’s value and the wealth of the investors are increased. In contrast, negative NPV of the investments and projects would mean losing the money of the company if ever the project was implemented. This is in accordance with the NPV decision rule. In investment alternatives, the highest NPV investment alternative should be chosen. Think of it as receiving the NPV in cash once the highest NPV alternative is chosen. Now, if the project’s NPV is zero, the investment may show a gain or loss on the project (Fundamentals of Corporate Finance, 2011). 4. Explain how an interest rate is just a price. Prices actually signal the rise and fall of market economics. Basically, the answer starts with the
Running Head: LONG-TERM FINANCING
University of Phoenix
July 1, 2008
In this paper team d will compare and contrast the capital asset pricing model and the discounted cash flows model. The paper will also evaluate the debt/equity mix and the dividend policy. In addition, it will describe several characteristics of debt and equity as well as the cost. In closing, the paper will evaluate…
Long Term and Short Term Finances
The difference between long-term and short-term financing in the length of time the debt obligation remains outstanding. Short-term financing is typically for continuing operations and less than a year. Short-term is more often used for working capital requirements, or day-to-day operations of the business. There are 4 main types of short-term debt financing:
Overdraft is the instant extension of credit…
The conservative approach to working capital as its name suggests notes that working daily capital is financed through long term financing and that short term financing is not commonly utilized. Emery, Finnerty, & Stowe (2007) states that with the conservative approach, “Long-term financing is used to finance all of the firm’s long-term assets, all of its permanent current assets, and some of its temporary current” (p. 642). A conservative and more flexible working capital…
SOURCES OF FINANCE
Various sources of short
term and long term finance
Finance by financial
• It is rightly said that finance is the lifeblood of business. No Business can be
carried on without source of finance .
The financial manager is mainly
responsible for raising the required
finance for the business. There are
several sources of Finance and as such
the finance has to be raised from the
right kind of source.
locations and office space. Leases that transfer substantially all the risks and benefits of ownership are recorded as financing leases, and are included with property and equipment, accounts payable and accrued liabilities and other long-term liabilities as applicable. All other leases are considered operating leases and the related rent is expensed on a straight-line basis over the term of the lease, any rent-free periods are also amortized on a straight-line basis. Landlord inducements are also deferred…
Welcome to FIN 370, Working Capital Management. Working capital management entails short-term financial decision making. Short-term decisions involve cash inflows and outflows that occur within a year. What types of decisions need to be made? Here are some examples:
1. How much cash should be kept in order to pay bills?
2. How much cash needs to be borrowed in the short-term?
3. How much inventory should be kept on hand?
Working capital management is important for the following reasons…
The following paper will contrast lease versus purchase options defining debt and equity financing options. Additionally the paper will provide examples of these options and the advantages as to why companies decide to choose one option over the other, or decide to use a mix of both in their capital structure.
Companies incur in debt financing when they need to raise capital by borrowing money from a lending institution such as banks and other sources of lending…
Major risks and implications of those risks for the conduct of the audit.
Financing and market risk
The Company generally borrows on a long-term basis and is exposed to the impact of interest rate changes and foreign currency fluctuations. Debt obligations at December 31, 2007 totaled $9.3 billion, compared with $8.4 billion at December 31, 2006. The net increase in 2007 was primarily due to net issuances of $573 million and the impact of changes in exchange rates on foreign currency denominated…
that technology can be used to improve operating efficiencies.
Assembling proper machines to the labour for you
Managements you time and more efficiencies due to the fact you know how much you can produce in a day
5. Describe the following business terms in your own words and if applicable provide a current local example of each;
Production, Operations Management, Production Planning, Production Process, Mass Production, Mass Customization, Resource Planning, MRP, MRPII, ERP, Supply Chain Management…