MASTERS IN BUSINESS ADMINISTRATION MAY/2015 BMMF5103 MANAGERIAL FINANCE Q1: The role of a financial manager requires both an understanding of how the business functions as a whole and specialized financial knowledge. The head of the financial operations is called the chief financial officer (CFO). Financial managers develop strategies that will implement the long-term goals of a corporation. Their main goal is to maximize the value of stock shares. Stockholder wealth maximization is the appropriate goal for management decisions. The risk and timing associated with expected earnings per share and cash flows are considered in order to maximize the price of the firm’s common stock. Maximizing shareholder wealth …show more content…
This is bad for investors because the entire point of a risk premium is to achieve a higher rate of return on investments by accepting more risk. For most assets the risk premium will be positive before an investment is undertaken since investors will demand compensation over and above the risk-free return to invest money in risky assets. But after an investment is undertaken, the observed risk premium can be negative if the asset’s nominal return is unexpectedly low, the risk-free return is unexpectedly high, or if some combination of these two events occurs. So, yes the risk premium can be negative after an investment is undertaken because this will promise expected or reasonable returns to the investors. Q4: A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. Good examples of this kind of shares are Berkshire Hathaway and Google. The reasons for this are because these companies have the following advantages which are beneficial to the investors in terms of: 1) Good fundamentals These are big established conglomerates which are well known worldwide on their excellent operational performance such as efficiencies in management and Human Resource. Their outstanding financial structures and investments stabilities and investment performance are also big attractions to the investors which they believe could bring maximum returns on
Financial Management: “The process for and the analysis of making financial decisions in the business context.” (Cornett, Adair, & Nofsinger, 2016, p. 5).
c. Smaller payments mean more time in debt. d. Your lower interest loans also get rolled into the deal so you end up with minimal savings.
1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve. (3-6 sentences. 2.0 points)
The decision making of management is very crucial and involves various analysis to be performed. There are various ratios and methods that can be useful for mitigating the risks and increasing the expected returns with investments. The financial forecast is a mix of the behaviour,
Accounts receivable (net) increased by $500,000 during the year. This increase has what effect on cash flow?
* Calculated at the time of an investment, but not realized until the investment has run its course. If it is a stock that the rate of return is being determined the risk could be high. On the other hand if it is a bond there is limited risk knowing exactly what is to be paid annually or after a bond matures.
NPV: If NPV>0, accept the project [which are expected to add value to the firm], otherwise don’t bother.
Second City Options (SCO) is a small firm that specializes in option trading. Employing 35 people, SCO is located on LaSalle Street in the Chicago financial district. It is a member firm of the Chicago Board Options Exchange (CBOE), where it trades options on stocks and stock indices. It is also a member firm of the Chicago Mercantile Exchange Group (CME Group), where it trades options on futures and the underlying futures contracts.
Financial Management is a critical aspect of any business in order to achieve a sustainable and efficient cash flow. It is essential in maintaining the link between a business’s future financial goals (profit maximization) and the resources that it has in order to achieve its objectives. Businesses demand certain common goals that increase a bussiness's all around achievement, Some of which involve; growth amongst assests, An increase in efficiency in all areas of the business whether it be management or not. And the ability to meet short term and long term debts. Finacial management undertakes the responsibility to implement and acheive these goals for the business using a range of strategies shaped to meet the needs of the business and
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First time this phenomenon was presented by the economists Rajnish Mehra and Edward Prescott in 1985. They discovered that the return from US equity investments in comparison to the return from a risk free government securities had been much far above during the twentieth century to be interpreted by the traditional economic theories (Siegel and Thaler, 1997).
economy. The immediate effects of the economic condition impact that causes physical damage in global dynamic’ ripples cascade seen around the world. There are several critical primary financial management experiences every organization must face in the wake of economic reporting such as financial planning capital budgeting and capital structure. Financial planning is probably the most dynamic of the process for a Chief Financial Officer to understand the company’s performance. All this is taking place, and an effective financial decision making requires an understanding of working goals of the organization. In other words, it relates the ability to raise funds and the ability to manage risk in buying productive assets. This is a global environment in which tomorrow’s CFOs will operate (). Focusing on approach to working compatibly within a changing environment as the organization redistributes its goal.
1. An international bank loaned money to an emerging country a few years ago. Because of the nonpayment of interest due on this loan, the bank is now negotiating with the borrower to exchange the loan for Brady bonds. The Brady bonds that would be issued would be either par bonds or discount bonds with the same time to maturity.