FIN 307 Week 1 mini case

Week 1 Mini Case

Read the Mini-case on pages 55-56 in your textbook. After reading through the case and taking notes, you will respond to questions A through R. In addition to your textbook, you should use at least two additional scholarly sources to support your answers.

Business School Assignment Instructions

The requirements below must be met for your paper to be accepted and graded:

Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style, see example below.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 80% of your paper must be original content/writing.

No more than 20% of your content/information may come from references.

Use at least three references from outside the course material; one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.

Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

References must come from sources such as scholarly journals found in EBSCOhost or on Google Scholar, government websites and publications, reputable news media (e.g. CNN , The Wall Street Journal, The New York Times) websites and publications, etc. Sources such as Wikis, Yahoo Answers, eHow, blogs, etc. are not acceptable for academic writing.

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre.

a. Why is corporate finance important to all managers?

b. Describe the organizational forms a company might have as it evolves from a start- up to a major corporation. List the advantages and disadvantages of each form.

c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?

d. What should be the primary objective of managers?

(1) Do firms have any responsibilities to society at large?

(2) Is stock price maximization good or bad for society?
(3) Should firms behave ethically?

e. What three aspects of cash flows affect the value of any investment?

F. What are free cash flows?

g. What is the weighted average cost of capital?

h. How do Free cash flows and the weighted average cost of capital interact to determine a firm’s value?

i. Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?

j. What do we call the cost that a borrower must pay to use debt capital? What two components make up the cost of using equity capital? What are the Four most Fundamental Factors that a²ect the cost of money, or the general level of interest rates, in the economy?

k. What are some economic conditions that affect the cost of money?

l. What are financial securities? Describe some financial instruments.

m. List some financial institutions.

n. What are some different types of markets?

o. Along what two dimensions can we classify trading procedures?

p. What are the differences between market orders and limit orders?

q. Explain the di²erences among dealer-broker networks, alternative trading systems, and registered stock exchanges.

r. Briefly explain mortgage securitization and how it contributed to the global economic crisis.

A. Why is corporate finance important to all managers?

Answer: Corporate finance is important to managers as it is necessary to take the following decisions:

  • It takes the investment decisions, where to invest, which investment alternative is better and how much return, it will provide in how much time. Whether the project should be accepted or rejected
  • It is important to take finance decisions, which source of funds is better for raising money, in corporate finance, managers calculate the cost of capital of each financial alternative and go with the option that has least cost of capital.
  • It is also important for managers to take dividend decisions, how much dividend should be given and how much profit should be retained.

D. What should be the primary objective of managers?

Answer: Primary objective of managers should be to maximize the wealth of the shareholders by maximizing company’s stock price and also to achieve the business goals by working in a team for common target.

1. Do firms have any responsibilities to society at large?

Answer: Yes, they do. Firms have responsibility to provide a safe working culture and environment to employees and stakeholders. They also has the corporate social responsibility in which they work for the betterment of society. They make sure that no person or animal is harmed due to activities of firms.

2. Is stock price maximization good or bad for society?

Answer: Yes, Stock price maximization is good for society. When stock price increases, company’s market capitalization increases. Company grows in the market. It provides capital appreciation to the shareholders. It also raises the confidence and faith of debt holders. It pays taxes on time so Government is also happy. When company maximizes share price, it need low cost operations and products, customers become happy as they get products at cheaper prices.

3. Should firms behave ethically?

Answer: Yes, They must behave ethically. Ethics are the values that each and every company should have. Firms maintain high ethics in every step of business and deals. When firms follow ethics, they become more profitable in future and their brand value increases in the market.

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