NaimExplain

Why does it make sense for corporations to maximize their market value? Answer: Value maximization is the natural financial goal of the firm. Maximizing value maximizes the wealth of the firm's owners, its shareholders. Shareholders can invest or consume that wealth as they wish.

Who are the major financial managers? Answer: Almost all managers are involved to some degree in investment decisions, but some managers specialize in finance, for example, the treasurer, controller, and CFO. The treasurer is most directly responsible for raising capital and maintaining relationships with banks and investors that hold the firm's securities. The controller is responsible for preparing financial statements and managing budgets. In large firms, a chief financial officer who oversees both the treasurer and the controller will also be involved in financial policymaking and corporate planning.

What are the advantages and disadvantages of the most common forms of business organization? Which forms are most suitable to different types of businesses? Answer: Businesses may be organized as sole proprietorships, partnerships, or corporations. A corporation is legally distinct from its owners. Therefore, the shareholders who own a corporation enjoy limited liability for its obligations. Ownership and management of corporations are usually separate, which means that the firm's operations need not be disrupted by changes in ownership. On the other hand, corporations are subject to double taxation. Large public companies are always corporations.

What does "real asset" mean? What is a "financial asset"? Answer: Real assets include all assets used in the production or sale of the firms' products or services. Real assets can be tangible (plant and equipment, for example) or intangible (patents or trademarks, for example). Financial assets are securities (such as shares) sold by the firm to raise money and represent claims on the firm's real assets and the cash generated by those assets.

What are the two major decisions made by financial managers? Answer: Financial management can be broken down into: (1) the investment, or capital budgeting, decision, and (2) the financing decision. The firm has to decide: (1) how much money to invest and which real assets to invest in and (2) how to raise the necessary cash.