Finance- chapter 1

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  • Created by: jmf00632
  • Created on: 07-10-19 12:13
What is the capital budgeting decision
The process of planning and managing a firms long term investments
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Example of a capital budgeting decision
A large business like Tesco, deciing weather too open another store would be an impportant captial business decision
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capital structure
specific measure of long term debt and equity that a firm chooses to use?how i the firm going to obtai and manage the long-term financing it needs to support it long term investments?
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working capital man
- this is a firm short term and long term liabilites (inventory, money owed to a supplier)
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What is the goal of financial management?
make money or add value for the owners - mac the current vlue per share of the exisiting ewuity
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definition of corporate finance
corporate finance delas with ways to get fuding. - what long term inv a company should make, where will you get the funding to pay for the inv, how will you manage your everyday financial activity?
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What is a dealer market?
A dealer market is a financial market mechanism wherein multiple dealers post prices at which they will buy or sell a specific security of instrument. ... Bonds and foreign exchange trade primarily in dealer markets,
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example of a dealer market
trading on the Nasdaq is a prime example of an equity dealer market.
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what is an auction market
n auction market is a market in which buyers indicate the highest price they are willing to pay and sellers indicate the lowest price they are willing to accept. A trade occurs when the buyer and seller agree on a price
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What does OTC stand for?
Over-the-counter (OTC) refers to the process of how securities are traded for companies that are not listed on a formal exchange such as the New York Stock Exchange (NYSE). Securities that are traded over-the-counter are traded via a broker-dealer
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Equity
The amount of money raised by the firm that comes from the owners (shareholders) investment
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What are auction markets and examples?
In auction markets like Euronext, brokers and agents meet at a physical location (the exchange) to match buyers and sellers of assets.
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What is a dealer market and example?
Dealer markets like the foreign exchange market who buy and sell assets themselves at locales, communicating with other dealers either electronically or literally over-the-counter.
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What kind of market is the London stock exchange?
The London Stock Exchange is a hybrid market where the largest securities are traded in an auction market and the other securities are traded in a dealer market
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What is the current equity value and why should managers focus on it?
the current equity value reflects the risk, timing, and magnitude of all future cash flows, both short-term and long-term.
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What does corporate finance mean?
Finance relates to the decision-making and strategies of corporations.
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what 3 main elements is corporate finance dived into?
a. The investment decision. b. The financing decision. c. Short-term capital management.
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What is the general objective of corporate finance?
Each decision is framed within the general objective of maximizing firm value while ensuring that risk is appropriately managed.
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As small firms grow larger they focus more on raising capital from the organized capital markets. Explain why this occurs.
The main reason firms choose different forms of financing relates to their cost. The financial manager should choose the funding flow that is cheapest and less risky. When firms are small, they are not able to list on stock exchanges and
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continued
therefore they will only have access to private investment, be it a bank or a private investor. As they get bigger, stock exchanges become a viable option for funding and hence it can also be used.
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As a financial manager, what would your goals be if your company is losing 10,000 a week and is in threat of not being able to pay it creditors?
the financial manager should manage financial planning to enhance short term liquidity to meet the firm’s obligations. OR asset sell off
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If you are in charge of a private firm and it doesn’t have a share price, what should be your goal as a financial manager? Explain
The objective of the firm will remain the same, which is to maximize the market value of existing owners’ equity
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Can our goal of maximizing equity value conflict with other goals, such as avoiding unethical or illegal behaviour?
we could argue that these are non-economic phenomena and are best handled through the political process. A classic (and highly relevant) thought question that illustrates this debate goes something like this:
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example
A firm has estimated that the cost of improving the safety of one of its products is £30 million. However, the firm believes that improving the safety of the product will only save £20 million in product liability claims. What should the firm do?”
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new owners have bought out the company and they tell you that they want to lay off staff but you think the staff is an asset to the team. how do you argue against the new owner?
- redundancy packages can be expensive - lawsuits and union activity all have a bad impact on a firms image - redundancies could effect the prod [rpcess - customers and sales. instead they can identify other ways savings can be made
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The goal of (financial) management of a firm is best stated as:
To maximize the value to the shareholders
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. The CFO (Chief Financial Officer) of a corporation is NOT responsible for:
Designing of new products
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The CFO (Chief Financial Officer) of a corporation IS responsible for:
Raising cap, preperation of financial statement, cash man
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is a profit a personal income for a listed corporation?
no
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the following are all for a listed corporation
The corporation is a legal entity C The shareholders have limited liability D It is easy to trade the shares
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A type I agency relationship describes the relationship between
the shareholders and the manaers
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yo jess
remebrer to revise the tutorial questions for each week too
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how does cash flow circulate between a company and its investors?
• cash comes from investors and is used by by the firms operations to generate additional cash. this is then transferred back to investors or retained in the firm for investment in the future.
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a business paying tax
• by paying less tax there are more funds available to give invesotrs or keep for future invemstnes. however there is a mroal obligation on firms to pay tax and contribute to society
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Other cards in this set

Card 2

Front

Example of a capital budgeting decision

Back

A large business like Tesco, deciing weather too open another store would be an impportant captial business decision

Card 3

Front

capital structure

Back

Preview of the front of card 3

Card 4

Front

working capital man

Back

Preview of the front of card 4

Card 5

Front

What is the goal of financial management?

Back

Preview of the front of card 5
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