Fin111 critical thinking questions week 1 PDF

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Fin111 critical thinking questions week 1 1.2. What are the three fundamental decisions the financial management team is concerned with, and how do they affect the company’s balance sheet?  The three fundamental decisions the financial management team is concerned with include capital budgeting decisions, financing decisions and working capital management decisions. Capital budgeting decisions refer to the decisions involving long-term investment such as identifying productive assets the company should buy. Additionally, financing decisions refer to how companies should raise cash to pay for their investments, whereas working capital management decisions refer to the decisions made on how to manage the company’s current assets (such as cash inventory and accounts receivable) and current liabilities (such as trade credit and accounts payable). 1.8. Give an example of a conflict of interest in a business setting other than the one involving the real estate agent discussed in the text.  Another example may be an individual is the newly appointed operations manager of a company and your told to find a way to minimize expenses and the only way to do that is to operate sweatshops which goes against your ethical values although your ethical values conflicts with their professional obligation 1.1 Capital: What are the two basic sources of funds for all businesses  Debt (borrowing e.g. bond) and equity (e.g. retained earnings) 1.7 Management role: What are some of the working capital decisions that a financial manager faces?  Working capital management is the day to day management of a companiys current assets and current liabilities to make sure there is enough cash to cover operating expenses and there is spare cash to earn interest. The financial manager has to make decisions about the inventory levels or terms of collecting payments. 1.8 Organizational form: What are the three basic forms of business organization discussed in this chapter?  Sole trader, partnership and company (a company has pty ltd at the end tto state it is private and isn’t listed on the ASX). 1.16 Company’s goal: What are some of the drawbacks to setting profit maximization as the main goal of a company?  There are many drawbacks of getting profit maximization as the main goal of the company as:  it is hard to define profit (an accounting term revenue-expense and thus can be manipulated through accounts)  ignores the timing of the cashflow and size of cashflow. The time value of money (a dollar today may not be worth a dollar tomorrow) is one of the most important concepts in finance and it doesn’t take this into account  ignores uncertainty of cash flow  the main goal is to maximize share price....