Topic 1 - The Financial Management Function

Question 1

What are the main areas that a financial manager has to make decision on? and explain.

Answer 1

Investment Decisions - if investments are worth it based on return, time, level of risk and how scares resources are.
Financing Decisions - To use debt or equity.
Dividends Decisions - How much to give out for dividends and how much to save for investments.

Question 2

What are the differences between financial and corporate objectives?

Answer 2

Financial Objective - Targets can be expressed in financial term e.g Share Price, Earnings per shares.
Corporate Objectives - Launching New product, Expanding into new market.

Question 3

Is it possible to maximise shareholder wealth with a company making a loss? and Explain.

Answer 3

Yes, Maximising shareholder wealth is made up by dividends and shares price increase an example is Tesla and Space X

Question 4

What is the Agency Problem? and how to solve it?

Answer 4

Agency problem is when manager focus on short term goals to make themselves look better. This can be fixed by offering manager share options.

Question 5

What is Corporate Governance?

Answer 5

The seperation of duties and commitees to make sure one person is not in charge of everything and it can be regulated.

Question 6

What are the 3 E’s for the value of money for a Not for profit organisation? and explain.

Answer 6

Economy - Minimising the amount of resources to achieve the wanted level of service.
Efficency - Maximising Level of service outout for given amount of service.
Effectiveness - If the desired level of service is being achieved, its all about the end user.