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    Financial Management: shareholder wealth, WC, ratios, bonds

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    Please help answer the following financial managment short essay questions.

    1. Describe/explain the importance of maximizing shareholders wealth. Why does finance regard share value maximization as the primary corporate objective?

    2. Describe/explain working capital management and what it involves.

    3. What are the goals of Financial Management? Explain.

    4. What is networking capital and when is it used?

    5. What does financial ratios measure.

    6. How do you calculate Bond problems given mature years, face value and coupon rate.

    7. Describe/explain unsecured bonds.

    8. What is value of assets and what does it mean?

    9. Given a company's information on # shares outstanding, selling stock price, debt percentage, face value, yield and market premium, beta and corporate tax rate. How do you calculate cost of equity, percentage of equity. Write down formulas.

    10. What are security offerings?

    11. If given a company's underwriting discount percentage, offering price per share, what is the advantage of going public. How do you calculate?

    12. How do you calculate allocation of principal and interest given loan balance and annual payment?

    13. Describe/explain balloon payment.

    14. Describe/explain Call feature.

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    Solution Preview

    1) Shareholders are the really owners of the company. They invest capital into companies in the hope of getting positive return on the investment. Companies only exist for their shareholders. That's why maximizing the shareholders wealth is often considered as the primary corporate objective.

    2) The goal of working capital management is to ensure that the company can survive on a day-to-day basis. This involves managing the current assets and current liability and making sure that the current assets (such as cash, marketable securities etc.) is sufficient to pay for current liabilities (such as account payable and short-term interest payable).

    3) Regardless of the exact terminology, most companies share three equivalent goals of financial management:
    Maximize shareholder wealth = Maximize share price = Maximize firm value
    We already discussed the importance of maximizing shareholder's value. The maximization of share price would directly translate into the maximization of shareholder wealth through shock markets. Maximize firm value is a bit misleading. It would only also increases shareholders wealth if the ...

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