Fin 515 Week 1 Homework Essay
Week 1 Assignment:
Mini Case (p.45)
Week 1 Assignment
September 9, 2012
a) Why is corporate finance important to all managers?
Corporate finance is important because it enables managers to have an understanding of what funds would be necessary for upcoming projects and projects of their company as well as allowing them to plan ahead.
b) Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
When a company is evolving from a start up to a major corporation, it will probably have to grow through the stages of …show more content…
The providers would be invdivual stockholders and firms while the borrowers would be non-financial corporations and government. Usually financial intermediaries serve as the channel for which capital is transferred.
j) What do we call the price that a borrower must pay for debt capital? What is the price of equity capital? What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy?
The interest rate is the price a borrower must pay for debt. The cost of equity is the price of equity capital. The four fundamental factors include: 1) Production opportunities 2) Time preferences for consumption 3) Risk 4) Inflation
k) What are some economic conditions (including international aspects) that affect the cost of money?
The Federal Reserve policy can affect the cost of money. Also, federal budget deficit and surplus as well the lever of business activity can affect the cost of money.
l) What are financial securities? Describe some financial instruments.
Financial securities are pieces of paper with contractual provisions that entitle their owners to specific rights and claims on certain cash flows and values.
m) List some financial institutions.
Some financial institutions include credit unions, commercial banks, and investment banking