ACC501 Quize No1 Solution Fall 2019

ACC501 Quize No1 Solution Fall 2019

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The Primary textbook for the course is:

Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGraw Hill Publishers, ISBN 0-07-121057-7

Reference books will be:

Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley Publishers

Foundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGraw Hill Publishers

Course Contents

An overview of Financial Environment
Financial Statements, Taxes and Cash Flows

Time Value of Money and Discounted Cash Flow Valuation

Valuation of Stocks and Bonds

Net Present Value and other Investment Criteria
Capital Investment Decision

Risk and Return

Cost of Capital

Leverage and Capital Structure
Raising Capital

Working Capital Management


Finance: A Quick Look

Four Basic Areas

o Business Finance o Investments

o Financial Institutions o International Finance

Business Finance

Addresses the following three questions:

What long-term investments should the firm engage in?

How can the firm raise the money for the required investments?

How much short-term cash flow does a company need to pay its bills?


Deals with financial assets such as stocks and bonds.

It covers the following issues: o Pricing Financial Assets

o  Associated Risks and Rewards
o  Determining best mixture of financial investment

Career opportunities in investment o Stock Brokerage

Portfolio Management o Security Analysis

Financial Institutions

Businesses dealing in financial matters o Banks and Insurance companies

International Finance

Covers international aspects of corporate finance, investment and financial institutions.

Why Study Finance?

Marketing and Finance
o  Marketers have to work with budgets
o Need to get greatest payoffs from marketing expenditures and programs o Cost and Benefit analysis of projects
o  So, finance is vital for:
Marketing research

Design of marketing and distributions channels

Product pricing

Accounting and Finance

o Accountants are required to make financial decisions as well as understand the implications of new financial contracts

o  Financial analysts make extensive use of accounting information
Management and Finance
o  Business Strategy is always disastrous if financial planning is not adhered to.

What is Business Finance?

In order to start any new business, the following issues become vital o What long-term investment should be taken on?
o From where to get the long-term financing to pay for investment? Bring in other owners or borrow the money?
o  How to manage everyday financial activities?

The Financial Manager

To create value, the financial manager should:

Try to make smart investment decisions.
Try to make smart financing decisions

Business Finance and Financial Manager

Financial Management Decisions o Capital Budgeting
o  Capital Structure
o  Working Capital Management

Financial Management Decisions

Capital Budgeting
The process of planning and managing a firm’s long-term investments

Financial managers concern with how much, when and how likely is cash expected to receive

Evaluating the size, timing and risk of future cash flows is the essence of capital budgeting

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