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    Castor - Module 1 Activity 2 Finmgt

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    CASTOR, Vincent Paul
    The document summarizes the responses to 6 questions about finance: 1) The three areas of finance covered are financial management, capital markets, and investments, which are interrelated. 2) Maximizing shareholder value is consistent with social responsibility, as CSR benefits a firm's reputation and investors. 3) Conflicts can arise between stockholders wanting riskier projects and debtholders concerned about fixed returns. 4) Stockholders prefer managers maximize intrinsic value over current market price for long-term stability. 5) Ethics are important for business reputation with investors, employees and the public. 6) As a new finance officer, one would tell their father not to disclose confidential

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    Castor - Module 1 Activity 2 Finmgt

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    CASTOR, Vincent Paul
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    The document summarizes the responses to 6 questions about finance: 1) The three areas of finance covered are financial management, capital markets, and investments, which are interrelated. 2) Maximizing shareholder value is consistent with social responsibility, as CSR benefits a firm's reputation and investors. 3) Conflicts can arise between stockholders wanting riskier projects and debtholders concerned about fixed returns. 4) Stockholders prefer managers maximize intrinsic value over current market price for long-term stability. 5) Ethics are important for business reputation with investors, employees and the public. 6) As a new finance officer, one would tell their father not to disclose confidential

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    Castor_module 1 Activity 2 Finmgt

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    The document summarizes the responses to 6 questions about finance: 1) The three areas of finance covered are financial management, capital markets, and investments, which are interrelated. 2) Maximizing shareholder value is consistent with social responsibility, as CSR benefits a firm's reputation and investors. 3) Conflicts can arise between stockholders wanting riskier projects and debtholders concerned about fixed returns. 4) Stockholders prefer managers maximize intrinsic value over current market price for long-term stability. 5) Ethics are important for business reputation with investors, employees and the public. 6) As a new finance officer, one would tell their father not to disclose confidential

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    117 views3 pages

    Castor - Module 1 Activity 2 Finmgt

    Uploaded by

    CASTOR, Vincent Paul
    The document summarizes the responses to 6 questions about finance: 1) The three areas of finance covered are financial management, capital markets, and investments, which are interrelated. 2) Maximizing shareholder value is consistent with social responsibility, as CSR benefits a firm's reputation and investors. 3) Conflicts can arise between stockholders wanting riskier projects and debtholders concerned about fixed returns. 4) Stockholders prefer managers maximize intrinsic value over current market price for long-term stability. 5) Ethics are important for business reputation with investors, employees and the public. 6) As a new finance officer, one would tell their father not to disclose confidential

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Castor, Vincent Paul A.

    BSA-2B
    Activity 2 - Graded

    End of the chapter Questions:

    After reading and understanding Chapter 1 - Overview of Financial


    Management, you are ready to answer the following assigned questions:

    1. What are the three (3) areas in Finance that the book covers? Are these
    areas independent of one another or are they interrelated in the sense
    that someone working one area should know something about each of the
    other areas? Explain.

    There are three areas in Finance that the book covers. These areas are
    Financial Management, Capital Market, and Investments. They are
    interconnected to each another. If your work belongs to one particular area,
    you still have to be knowledgeable about the other two areas for the proper
    execution of your tasks. Understanding all areas gives you the needed
    information to interpret and relate all of the three. Knowing one area alone is
    not enough to provide you decent results in your operations. One example is
    from the book stating, “Banking is under capital markets, but a bank lending
    officer in charge of business’ loan request must know about corporate finance
    to make good judgment.” A corporate treasurer negotiating with a banker
    must also understand banking if the treasurer is to loan on “reasonable”
    terms. In addition, a security analyst trying to determine a stock’s true value
    must understand corporate finance and capital markets to do his or her job.
    Whatever angle you may look or tackle it, all three may be independent fields
    but an essential amount of knowledge is still needed for decision-making
    purposes.

    2. Is maximizing shareholder value inconsistent with being socially


    responsible?

    No, it is consistent and should be consistent with each other. The main
    goal of a firm is to maximize shareholder value and profitability but that should
    not disregard being socially responsible. Corporate Social Responsibility or
    CSR is the broad field of considerations regarding environment, human
    resources or employees, communities, society, and beneficiaries. Showing
    social responsibility can give a firm the reputation it deserves which is a good
    image among its investors and the public. Most public companies work in
    alignment to the interests of the public as well as shareholder value
    maximization with careful analysis of results from the course taken. Failure to
    show CSR has sever consequences that range from lawsuits, terminating
    employees, bankruptcy, to being raided by corporate raiders.

    3. What might conflicts arise between stockholders and debtholders?

    A sense of conflict of interest may arise from both sides. In the side of the
    stockholder, choosing between less risky but lower returns and more risky but
    higher returns. In the side of the debtholders, choosing between lending the
    firm or not since it is of consensus that most stockholders will go for higher
    returns once they loan from banks. The debtholders get a fixed amount paid
    with a given interest rate regardless if the firm performs god or bad in a low-
    risk project. However, if a project with high risk is presented, the dilemma
    arises within the debtholders on letting the firm borrow money or not. If the
    firm performs good, they have more benefits since the debtholders only get a
    fixed return of interest. However, if they fail to perform good and the results
    become severe, the investment's worth will become zero for the debtholders
    and get no to low interest return. Amidst this conflict, persistent stockholders
    try to convince debtholders to invest in the project although the risk. With this,
    the debtholders give higher interest rate conditions or limit the amount that
    can be borrowed by firms.

    4. If the firm could maximize either its current market price or its intrinsic
    value, would stockholders (as a group) wants managers to do? Explain

    Stockholders would prefer maximizing their intrinsic or true value. Managers


    will do their jobs in maximizing intrinsic value and average price over time.
    Intrinsic value focuses on the long-run of the company and in business, it is
    important to decide for the stability of the firm.

    5. Why ethics matter in Business?

    Just like Corporate Social Responsibility, individual ethics and business


    ethics as a whole is important for the public reputation of the company. An
    ethical company reflects the ethical behavior of employees, managers, and
    top executives. The more the firm stays true to being ethical and it is
    observant in public, attraction to investors, employees, sponsors, and other
    benefits like media will peak. Also, it is obvious that whenever conflicts arise
    between profitability and ethics, ethics will be considered in making decisions
    since it gives a good impression to externalities.

    6. Mini-Case: Ethics

    You are the newly hired Finance Officer of FC Products, a large


    manufacturer of industrial products. Yesterday morning the president of
    the company called you and other senior executives to his office where he
    stated that a competitor was about to file suit against FC for patent
    infringement. Regardless of the merits of the case, it will tie up the
    company’s talent for a long while and will be quite costly to fight. The
    effects on the company’s prospects cannot be measured, but it is possible
    that they will be severe.

    This evening you father called from your home city, where he and
    your mother have lived in retirement for a few years. You chatted about
    the weather, the children and other such things. Then he told you that he
    had just bought shares of stock of FC Products because he knows that
    any company you worked at would do well.
    Required: What would you say to your father?

    Since the company's concerns haven't been made public, confidentiality must
    be maintained by its employees. I would not tell my father anything regarding
    the case where FC's competitor has filed a suit against them. As a top officer
    entrusted by other officers and higher-ups, I will keep confidential information
    to avoid leaks regarding the company's courses of action and for it to be used
    against the company's favor leading to potential downfall. Although the current
    situation is costly and poses more severe outcomes, the company still has the
    chance to get back on its feet and provide improved services to its investors.
    Moreover, I would tell my father to be more careful and considerable when
    buying shares of stocks. I will enlighten him of the benefits and risks of
    investing in such fields and advice him to instead invest on other forms of
    businesses. Whatever the circumstance, I will stay loyal and avoid troubles
    arising from conflict of interest between company operations and personal
    social ties.

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