6: Financial Management, Concepts and Tools

Question 1

Financial management is concerned with the efficiency and effectiveness of what

Answer 1

the acquisition of financial resources and the use of these resources.

Question 2

Concepts and tools which are especially appropriate to financial management, including:

Answer 2

a. Concepts of cost
b. Time value of money concepts and calculations
c. Interest rate concepts and calculations
d. Financial valuation and valuation techniques
e. Forecasting and forecasting techniques

Question 3

what are sunk costs

Answer 3

costs of resources that have been incurred in the past and cannot be changed by current or future decisions. not relevant in making current decisions

Question 4

what are opportunity costs

Answer 4

discounted dollar value of benefits lost from an opportunity not taken as a result of choosing another opportunity. relevant to current decisions

Question 5

what are differential costs

Answer 5

costs that are different between two or more alternatives

Question 6

what is WACC

Answer 6

weighted average cost of capital: rate of return of each source of capital weighted by its share of total capital

Question 7

why does a company seek to minimize WACC

Answer 7

lower WACC means lower required revenue needed to earn a profit and easier to increase shareholder value