general information

Question 1

2 decisions for financial managers

Answer 1

What investments are we going to make?
How are we going to pay for these investments?

Question 2

Financial managers face an investment trade-off

Answer 2

invest in a project or pay out to owners (shareholders) so they can invest in themselves

Question 3

How to maximize firm value?

Answer 3

financial managers invest into projects with a higher return than the opportunity return that shareholders could earn themselves

Question 4

To raise money for investments, a company has two basic choices:

Answer 4

debt (company promises to pay back and pay interest)
equity (shareholders get no fixed return but own a part of the company and thus have rights to future profits)