Capital budgeting, capital structure and working capital management are the three types of financial management decisions.
Capital budgeting is “the process of planning and managing a firm’s long-term investments.” (Ross, Westerfield & Jordan, pg. 2) For example, a large company-deciding if is okay to enlarge the business by opening another store.
Capital structure is “the mixture of debt and equity maintained by a firm.” (Ross, Westerfield & Jordan, pg. 3) For example, finance management analyzes how to split the money and in some cases requests loans.
Working capital management is “a firm’s short-terms assets and liabilities.” (Ross, Westerfield & Jordan, pg. 4) For example, finance managements decides show much inventory it will own and how the credit terms are decided.
11. Goal of the Firm [LO2] Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
The statement is not correct, because managers should not only be focus on the current stock value, because their goal is to increase the stock value for the company’s stockholders. Current stock value gives ability to managers see on the short and long-term risks, timing and magnitude of all future cash flows.
Reference
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Fundamentals of Corporate Finance (11th ed.). New York, NY: McGraw-Hill Education.
CHAPTER 2
4. Per-Share Earnings and Dividends [LO1] Suppose the firm in Problem 3 had 90,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure?
9. Calculating Additions to NWC [LO4] The 2014 balance sheet of Steelo, Inc., showed current assets of $4,630 and current liabilities of $2,190. The 2015 balance sheet showed current assets of $5,180 and current liabilities of $2,830. What was the company’s 2015 change in net working capital, or NWC?
CHAPTER 3
4. Calculating Inventory Turnover [LO2] The Green Corporation has ending inventory of $417,381, and cost of goods sold for the year just ended was $4,682,715. What is the inventory turnover? The days’ sales in inventory? How long on average did a unit of inventory sit on the shelf before it was sold?
7. DuPont Identity [LO4] If Roten Rooters, Inc., has an equity multiplier of 1.15, total asset turnover of 2.10, and a profit margin of 6.1 percent, what is its ROE?
CHAPTER 4
1. Pro Forma Statements [LO1] Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
The company has predicted a sales increase of 15 percent. It has predicted that every item on the balance sheet will increase by 15 percent as well. Create the pro forma statements and reconcile them. What is the plug variable here?
6. Calculating Internal Growth [LO3] The most recent financial statements for Schenkel Co. are shown here:
Assets and costs are proportional to sales. Debt and equity are not. The company maintains a constant 30 percent dividend payout ratio. What is the internal growth rate?