week 1 lectures slides

Question 1

which are the main functions of a financial manager?

Answer 1

1) capital budgeting
2) risk and return
3) cost of capital
4) valuation of securities

Question 2

what are the main goals of financial management?

Answer 2

• maximize profits
• survive
• maximize sales
• avoid distress
• earning growth
• stability

Question 3

what are the 3 main form of business organizations? What are the differencies?

Answer 3

A) Sole Proprietorship
B) Partnership
C) Limited Corporation
week 1 slide 8

Question 4

How do liquidity and marketability differ between partnership and corporation?

Answer 4

Partnership: Restricted trading
Corporation: Traded easily, sometimes on exchange

Question 5

How do voting rights differ between partnership and corporation?

Answer 5

Partnership: Partners have control
Corporation: Each share gives a voting right

Question 6

what are the differencies between partnership and corporation regarding taxation?

Answer 6

partnership: Profits taxed at personal tax rate
Corporation: Profits taxed at corporate tax rate

Question 7

how do liability and the continuity of existence differ between partnersip and corporation?

Answer 7

Partnership: General Partners have unlimited liability, also the partnership has limited life
Corporation: Shareholders have limited liability, and the corporations has unlimited life

Question 8

how reinvestments and dividend payout are different in partnership and corporations?

Answer 8

Partnership: All profits allocated to partners
Corporation: Total freedom in dividend decisions

Question 9

what is the principal-agent problem?
which are potential solutions?

Answer 9

managers want to maximize their own wealth and power, while shareholders want managers to maximize the value of the company.
The two main solutions available are 1) managerial compensation -> performance-based pay
2) control of the firm -> are shareholders powerful?

Question 10

CASE: The company is spending $500 million to open a new plant and expand operations in China. No
profits will be produced by the Chinese operation for 4 years, so earnings will be depressed during
this period versus what they would have been had the decision been made not to expand in China
If the price of stocks will be affected how is it going to change?

Answer 10

surely the stock price will be affected,stock value only depends on the long-term vision: this is a value generating project, so the impact on the stock value will be positive! (even tho profitability will decrease in the next few years)