Financial Management Principles and Practice Solutions Manual
Principles and Practice
Timothy J. Gallagher
Colorado State University
Joseph D. Andrew, Jr.
2006 Freeload Press, Madison Wisconsin
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Financial Management: Principles and Practice
by Timothy J. Gallagher and Joseph D. Andrew, Jr.
This solutions manual provides the answers to all the review questions and end-of-chapter problems in Financial Management: Principles and Practice, by Gallagher and Andrew. The answers and the steps taken to obtain the answers are shown.
We remind our readers that in finance there is often more than one answer to a …show more content…
4. What is the basic goal of a business?
The primary financial goal of the business firm is to maximize the wealth of the firm's owners. Wealth, in turn, refers to value. If a group of people owns a business firm, the contribution that firm makes to that group's wealth is determined by the market value of that firm.
5. List and explain the three financial factors that influence the value of a business.
The three factors that affect the value of a firm's stock price are cash flow, timing, and risk.
The Importance of Cash Flow: In business, cash is what pays the bills. It is also what the firm receives in exchange for its products and services. Cash is therefore of ultimate importance, and the expectation that the firm will generate cash in the future is one of the factors that gives the firm its value.
The Effect of Timing on Cash Flows: Owners and potential investors look at when firms can expect to receive cash and when they can expect to pay out cash. All other factors being equal, the sooner companies expect to receive cash and the later they expect to pay out cash, the more valuable the