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Assigned Readings:

Chapter 1. An Overview of Financial Management and the Financial Environment.

Overview:

The main goal of financial management is to maximize intrinsic stock values for the benefit of society.  In this regard, special companies, reduce costs by innovative production processes, create value for customers by providing high quality products and services, and create value for employees by training and fostering an environment that allows employees to utilize all of their skills and talents.

Learning Objectives:

Chapter 1: An Overview of Financial Management and the Financial Environment

Learning Objectives:

  1. Understand the Corporate Life Cycle  
  2. Understand Financial Markets
  3. Claims on Future Cash Flows
  4. The Functions of Financial Institutions
  5. Overview of the U.S. Stock Markets
  6. Trading in the Modern Stock Markets
  7. Finance and the Great Recession of 2007

Problem Set #1

Assume that you recently got a job as an investment analyst and your boss has developed the following set of questions you must answer to explain the U.S. financial system to one of your firm’s clients.

  1. Why is corporate finance important to all managers?
  2. 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.
  3. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
  4. What should be the primary objective of managers?
  5. Do firms have any responsibilities to society at large?
  6. Is stock price maximization good or bad for society?
  7. Should firms behave ethically?
  8. What three aspects of cash flows affect the value of any investment?
  9. What are free cash flows?
  10. Who are the providers (savers) and users (borrowers) of capital? How is capital transferred between savers and borrowers?
  11. 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 affect the cost of money, or the general level of interest rates, in the economy?
  12. What are some economic conditions that affect the cost of money?
  13. What are financial securities? Describe some financial instruments.
  14. List some financial institutions.
  15. What are some different types of markets?
  16. Along what two dimensions can we classify trading procedures?
  17. What are the differences between market orders and limit orders?
  18. Explain the differences among broker-dealer networks, alternative trading systems, and registered stock exchanges.
  19. Briefly explain mortgage securitization and how it contributed to the global economic crisis.

Submit your answers in a Word document.