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ASU Principles of Finance Discussion

Chapter 1

An Overview of Financial Management

Self-test Questions

  1. Discuss the three areas of finance that this book covers. (1.5pts)
  1. Are the three areas of finance independent of one another, or are they interrelated in the sense that someone working in one area should know something about each of the other areas? Explain.
  1. Who is the CFO, and where does this individual fit into the corporate hierarchy? What are some of his or her responsibilities?
  1. Does it make sense for not-for-profit organizations such as hospitals and universities to have CFOs? Why or why not?
  1. What is the relationship among economics, finance, and accounting?
  1. List the advantages and disadvantages of proprietorships, partnerships, and corporations?
  1. How are LLCs and LLPs related to the other forms of organization?
  1. What is an S corporation and what is its advantage over a C corporation?
  1. Why don’t firms such as IBM, GE, and Microsoft choose S corporation status?
  1. What are some reasons why the value of a business other than a small one is generally maximized when it is organized as a corporation?
  1. What is the difference between a stock’s current market price and its intrinsic value?
  1. Should managers estimate intrinsic values or leave that to outside security analysts? Explain.
  1. If a firm could maximize either its current market price or its intrinsic value, what would stockholders (as a group) want managers to do? Explain.
  1. Should a firm’s managers help investors improve their estimates of the firm’s intrinsic value? Explain.
  1. Discuss three techniques stockholders can use to motivate managers to maximize their stock’s long-run price. (1.5 pts)
  1. Why might conflicts arise between stockholders and debtholders?
  1. How might astute bondholders react if stockholders take on risky projects?
  1. How can bondholders protect themselves from manager’s actions that negatively impact bondholders?
  1. Is maximizing shareholder value inconsistent with being socially responsible? Explain your answer.
  1. Define business ethics.
  1. What are some things companies can do to help ensure that their employees act ethically?

The self-test questions are intended to help you assess your understanding of the topics and concepts presented in the chapter. The questions are graded based on completion. However, responses should demonstrate an effort to thoroughly answer the questions while applying the concepts presented in the chapter. Points will be deducted for questions not answered or if you do not provide accurate responses for questions which include definitions or equations as presented in the chapter. All questions are worth one point unless otherwise stated.

The Google Docs link to the assignment is provided below. After you access the document, open as a Google Doc. Then you select “File” and make a copy for your drive. You edit within Google Docs (do not download). Then once you have completed, share the document with me using my Google account as stated on the course syllabus


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