Question

QUESTION 1

A. What is financial management all about?

B. Differentiate the objective of maximizing earnings with that of maximizing wealth.

C. What are the three major functions (DECISION AREAS) of the financial manager? How are they related?

D. Should the managers of a company HAVE SIZABLE amounts of common stock in the company? What are the pros and cons?

E. What is corporate governance? What role does a corporation’s board of directors play in corporate governance?

----------------------------------------------------------------------------------------------------------

QUESTION 2 – MODULE 2: TIME VALUE OF MONEY   

For your job as the business reporter for a local newspaper, you are given the task of putting together a series of articles that explain the power of the time value of money to your readers. Your editor would like you to address several specific questions in addition to demonstrating for the readership the use of time value of money techniques by applying them to several problems.

What would be your response to the following memorandum from your editor?

To:      Business Reporter

From: Perry White, Editor, Daily Planet

Re:      Upcoming Series on the Importance and Power of the Time Value of Money

In your upcoming series on the time value of money, I would like to make sure you cover several specific points. In addition, before you begin this assignment, I want to make sure we are all reading from the same script, as accuracy has always been the cornerstone of the Daily Planet. In this regard, I’d like a response to the following questions before we proceed:

1. What is the relationship between discounting and compounding?
2. Does present value decrease at a linear rate, at an increasing rate, or at a decreasing rate with the discount rate? Why?
3. What is the relationship between the present-value factor and the annuity present-value factor?
4. 1. What will $5,000 invested for 10 years at 8 percent compounded annually grow to?
   2. How many years will it take $400 to grow to $1,671 if it is invested at 10 percent compounded annually?
   3. At what rate would $1,000 have to be invested to grow to $4,046 in 10 years?
5. Calculate the future sum of $1,000, given that it will be held in the bank for 5 years and earn 10 percent compounded semiannually.
6. What is an annuity due? How does this differ from an ordinary annuity?
7. What is the present value of an ordinary annuity of $1,000 per year for 7 years discounted back to the present at 10 percent? What would be the present value if it were an annuity due?
8. What is the future value of an ordinary annuity of $1,000 per year for 7 years compounded at 10 percent? What would be the future value if it were an annuity due?
1. You have just borrowed $100,000, and you agree to pay it back over the next 25 years in 25 equal end-of-year payments plus 10 percent compound interest on the unpaid balance. What will be the size of these payments?
10. What is the present value of a $1,000 perpetuity discounted back to the present at 8 percent?

           

11. Muffin Megabucks is considering two different savings plans. The first plan would have her deposit $500 every six months, and she would receive interest at a 7 percent annual rate, compounded semiannually. Under the second plan she would deposit $1,000 every year with a

rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be made six months from now and, with Plan 2, one year hence.

(a) What is the future (terminal) value of the first plan at the end of 10 years?

2. What is the future (terminal) value of the second plan at the end of 10 years?
3. Which plan should Muffin use, assuming that her only concern is with the value of her savings at the end of 10 years?
4. Would your answer change if the rate of interest on the second plan were 7 percent?

Answer 1

As HOMEWORKLIB's Policy I would be answering the first question only

Solution:

Financial Management is one the most important activity for any organization, the role of Financial Management is to plan control, monitor and organize the financial resources of any organization. In laymen's term, we can say that Financial Management is the practice of managing money of the firm.

The Financial Management deals with procuring funds for organization, managing the funds, allocating them and monitoring if they are being used as they have planned.