Chapter 3 - Financial Strategy

Question 1

Financial Management Framework

(3 key decisions)

(and linkages)

Answer 1

• Investment -
  
  • high risk more expensive finance
• Financing -
  
  • large interest payments affect divi
• Dividend -
  
  • high divi less for investment, more financing

Question 2

Internal constraints on meeting financial objectives

Answer 2

• Stakeholders needs
• Agency problem - directors(agents) not wholly centred on maximising shareholders(principle) wealth
• Funding issues - spending freeze
• Strategic factors - short term loss for long term gain

Question 3

External constraints on meeting financial objectives

Answer 3

• Funding
• Regulatory - price restrictions, quality targets
• Govn - tax/legislation
• Tax
• Economic - interest rates, exchange rates, inflation
• Investor relations

Question 4

3 motives of holding cash

Answer 4

• Speculative
• Transcation
• Precautionary