浙江财经大学企业金融期末复习资料

Problem:

1.Function of financial market and list some financial intermediarie

Answer1:

A.contributing to higher production and efficiency in the economy

B.Improving the well-being of consumers by allowing them to their purchases better

Answer2:

(1) facilitate investment and financing.

(2) a reasonable guidance of capital flow, which contributes to the concentration of capital and promotes the transfer of high-efficiency units.

(3) convenient and flexible turnover of funds.

(4) to achieve risk diversification, reduce transaction costs.

(5) are conducive to enhancing the flexibility of macro-control.

(6) to help strengthen economic ties between regions and countries.

Intermediaries:

Banks

Building societies

Credit unions

Financial advisers or brokers

Insurance companies

Collective investment schemes

Pension funds

The investment decision is the most important of the firm’s three major decisions when it comes to value creation. It begins with a determination of the total amount of assets needed to be held by firm.

Financing decision: financial manager is concerned with the makeup of the right-hand side of the balance sheet.

Asset management decision: once assets have been acquired and appropriate financing provided, these assets must still be managed efficiently.

2.Why profit maximization is not an ideal corporate finance objective?

(1)The primary goal of corporate finance is maximize or increase shareholder value not profit

(2)To a skilled accountant, however, a decision that increases profits under one set of accounting rules can reduce it under another.

(3)Accounting profits are not necessarily the same as cash flows.

(4)The problem with profit maximization as a goal is that it does not tell us when cash flows are to be received.

(5)Profit maximization ignores the uncertainty or risk associated with cash flows.

总：For the fact that a firm cannot survive with mere profit maximization ,but must increase long-term security through investment and meeting shareholder expectations. This will increase their productive capacity for the future as well as encourage the risky capital investment of the shareholders.

3. Characteristics of business organization:

(1) sole proprietorship: A business owned and managed by a single individual.

Features: Cheapest to form. no formal charter, few government regulations

Pays no corporate income taxes

Unlimited liability for business debts and obligations.

Its life is limited by the life of the sole proprietor

The money raised is limited by the proprietor’s personal wealth

(2) partnership: A business formed by two or more individuals or entities.

General partnership: All partners share in gains or losses, all have unlimited liability for all partnership debts.

Limited partnership: One or more general partners will run the business and have unlimited liability. The limited partner's liability is limited to their contribution to the partnership. Features: Often inexpensive and easy to form

Difficult to transfer ownership

Difficult to raise large amounts of cash

Income is taxed as personal income

(3) Corporation: Is a legal “person”separate and distinct from its owners .

Features: Limited liability for stockholders.

Unlimited life for the business.

Ownership can be easily transferred.

These characteristics make it easier for corporations to raise capital.

The disadvantage to corporations is double taxation.

4. What is corporate finance and describe their decisions?

Corporate finance is the study of the answers to the following questions:

(1) What long-term investments should you take on?

(2)Where will you get the long-term financing to pay for your investment?

(3) How will you manage your everyday financial activities?

(WIKI)Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources.

Investment Decisions: Concerning non-current assent or capital budgeting.

Evaluating the size, timing and risk of future cash flow.

Cash flow versus accounting profit

Financing Decisions: Determine how the assets will be financed.

What is the best type of financing?

What is the best financing mix?

What is the best dividend policy (dividend decision)?

Capital structure

Asset Management Decisions: How do we manage existing assets efficiently?

Greater emphasis on current asset management than fixed asset

management.

Working capital management.

5. Evaluate IRR rule