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Finance Q & A

Good Essays
1. Explain why market prices are useful to the financial manager.

The financial manager is responsible for giving financial advice and support to clients and colleagues that will enable them to make good business decisions. Particular work environments differ considerable and involve both public and private sector organizations such as retailers, corporations, financial institutions, charities, and even small manufacturing companies and schools (Financial Manager, 2011).

Primarily, financial managers look at the market price in maximizing the value of the firm. The market value is the present value of the net cash flow divided buy the risk. Investors consider the firm’s future and present earnings, disadvantages or risks and other factors that will influence a firm prior to deciding to create an investment decision and the market price of the stock that will reflect all the information considering these factors (Arain, 2011).

2. Discuss how the Valuation Principle helps a financial manager make decisions.

Valuation Principle is the analysis between values of benefits and costs. This gives an understanding for creating decisions in a company. When valuing a company in a competitive market. Its good price will always be the basis rather than the preference or opinion of a person or a firm. Hence, the valuation principle is the commodity or asset to the investors or firm that is recognized by the competitive market. The financial manager will weigh the costs and benefits of decision in utilizing that market price. Of course, if the benefits exceed the costs, the decision made by the financial manager will increase because of the firm’s market value (Fundamentals of Corporate Finance, 2011).

3. Describe how the Net Present...

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Clougherty, T. (2011). Interest Rates and the Price System. Retrieved on July 8, 2011 from http://www.adamsmith.org/blog/tax-and-economy/interest-rates-and-the-price-system/.

Financial Manager. (2011). Retrieved on July 8, 2011 from http://www.prospects.ac.uk/financial_manager_job_description.htm.

Fundamentals of Corporate Finance. (2011). Chapter 3 – The Valuation Principle: The Foundation of Financial Decision Making. Retrieved on July 8, 2011 from http://su3finance.wikispaces.com/Chapter+3+%E2%80%93+The+Valuation+Principle-The+Foundation+of+Financial+Decision+Making.

Slack, B. & Rodrigue, J.P. (2011). Cost/Benefit Analysis. Retrieved on July 8, 2011 from http://people.hofstra.edu/geotrans/eng/ch9en/meth9en/ch9m1en.html.

The Basics of a Bond. (2011). Retrieved on July 8, 2011 from http://investing-school.com/definition/the-basics-of-a-bond/.
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