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- Many businesses finance their investment activities internally. Should internal financing affect the efficiency with which the interest rate performs its functions? No, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. Yes, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. O No, because internal financing relies on a different profit calculation. Yes, because firms are usually more anxious about what happens to money that they do not have to pay back.See below for some statements on how financial managers can create value for their firms. Which of the following statement(s) is (are) FALSE? Select one or more alternatives: Managers can create value for the firm's stakeholders through improving its ESG performance. The "ESG" in ESG investing stands for environmental, social and governance. Capital markets are less efficient than goods markets; this is why the primary source of creating value is through clever financing decisions. If capital markets are inefficient at times, financial managers could create value through financing decisions. Managers can create value for the firm's stakeholders through improving its ESG performance. The "ESG" in ESG investing stands for environmental, sustainability and governance.Lower rates of interest means higher levels of loans, and therefore, higher level of investment in real capital equipment. With more capital we would expect an economy to be more productive and to have higher levels or real income and economic growth. Critically analyse this statement by connecting it with the financial intermediaries and how viral they are to a well-functioning financial system.
- Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________ .The ultimate goal of the financial system in a market economy is to make the price of financial assets correctly reflect their true value (informational efficiency) achieve the financial equality among different people and organizations make the costs of financial transactions as low as possible (operational efficiency) allocate funds to their best use (allocational efficiency)Forecasting a firm's future sales is the key element in developing a financial plan, yet forecasting can be extremely difficult in some industries. If forecast is very poor, does this mean that the financial planning process if not worthwhile? Explain your answer.
- Explain how you will apply in real life the following AXIOMS of FINANCIALMANAGEMENT AXIOM 1: RISK-RETURN TRADE OFFAXIOM 2: TIME VALUE OF MONEYAXIOM 3: CASH NOT PROFIT IS KINGAXIOM 4: INCREMENTAL CASH FLOWSAXIOM 5: EFFICIENT CAPITAL MARKETSAXIOM 6: THE CURSE OF COMPETITIVE MARKETSAXIOM 7: AGENCY PROBLEMAXIOM 8: TAXES BIAS BUSINESS DECISIONSAXIOM 9: ALL RISK IS NOT EQUALAXIOM 10: ETHICAL BEHAVIOR IS DOING THE RIGHT THING AND ETHICALDILEMMAS ARE EVERYWHERE IS FINANCE.Which of the following statements is CORRECT? a. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free. b. Actions that increase reported net income will always increase cash flow. c. One way to increase EVA is to achieve the same level of operating income but with more total invested capital obtained at a higher cost of capital. d. If a firm reports positive net income, its EVA must also be positive. e. One way to increase EVA is to generate the same level of operating income but with less total invested capital.a) One of the biggest problems for any economy is to figure out how to get or transfer money from people or firms who want to save (savers) to people or firms who want to borrow (investors). • Explain how financial markets can help to solve this problem efficiently. • Discuss how financial markets function and which tools they can offer to solve this problem. • Discuss how financial systems are of crucial significance to adequate capital formation, which is indispensable to a speedy economic growth and development. b) Analyze the relationship of financial development and economic growth/development. In other words, discuss how financial, especially capital, markets help economic growth and development.
- (b) Kindly Provide brief answers to the following:i. What is the difference between systematic and unsystematic risk?ii. What is strategic business plan and why it is important for the success of a firm? Explain in your own words.iii. Explain for which types of projects, a detailed capital budgeting analysis is required and why?iv. What do you mean from retained earnings breakpoint? Explain in your own words with an example.Which of the following is an example of a way in which companies can create value by exploiting real options? A.Exercising in-the-money real options immediately B.Optimally delaying or abadoning projects C.Abandoning good projects in favor of newer projects D.Acting quickly to take on the new projects even if there is no cost to waitFinancial analysts have developed two performance measures: Market Value Added (MVA) and Economic Value Added (EVA). Discuss and explain both. Which is a better representative of the firm’s performance, and why?