Samantha Qureshi Chapter 1 Question 2: Explain the three types of business decisions that a financial manager faces.

Answer: When making business decisions a financial manager faces decisions such as capital budgeting, capital structure and working capital management. Capital budgeting is when a financial manager looks for a potential investment in a fixed asset. Capital structure is known as the business funds and funding choices. Lastly, working capital management is the daily management of the business capital and short term financing. Question 5: List the three main forms of business organizations and describe their advantages and disadvantages. If you were to consider starting up a lawn care business for the summer what type of business organizations might you use? Answer: The three types of business organizations are sole proprietorship, partnership and corporation. A sole proprietorship is when there is a single business owner who takes all responsibilities for the company such as legal and financial and is personally held responsible. A partnership shares the business responsibilities between two or more people. No one specific person is held responsible for the company, but all are personally responsible and liable for the company. In a corporation, no one specific person can be held responsible for the company. The company is responsible for the company and no employee can be held legally or financially responsible. The shareholders of the company are the owners of the company. I would use a sole proprietorship because I would be the sole owner to the company. I would have to take responsibility for the business and it is a business that I am starting up on my own. Question 8: Why is maximizing a firms accounting profits not an appropriate goal for the firm? Answer: It is not an appropriate goal due to ethical reasons. The Sarbanes-Oxley Act was created to prevent any misconduct and unethical issues to arise within the financial department in a company. Maximizing a firms accounting profits are not always in the best interest of the company or for the employees who work in the company. Different decisions made to maximize profits may affect the business negatively. The Sarbanes-

Oxley Act protects the shareholders by protecting them from accounting fraud or any financial misconduct.

Chapter 2 Question 3: What is a financial intermediary? List and describe the principal types of financial intermediaries in the U.S. financial markets. Answer: A financial intermediary is an institution who helps unite companies in need of money with investors looking to invest their money. They are the middle man that connects people with what they need. The principal types of intermediaries are commercial banks and non-bank intermediaries such as: financial service corporations, insurance companies, investment banks, investment companies, ETFs, hedge funds and private equity firms. Commercial banks gives out loans with interest rates. People can come and borrow money from them and return it slowly over a set amount of time. Financial service corporations give loans out but they are their own corporation and not a bank. Insurance companies sell insurance to protect peoples and businesses assets and investments. Investment banks are solely in the business to help businesses raise money and advise them in major transactions. Investment companies take the money people give to save and loan it out for investment purposes. ETFs are like stocks in a business. Hedge funds are similar to ETFs but hold higher risk and have a specific profile they must fit in in order to take on a hedge fund. A private equity firms can either be a venture capital firm or a leveraged buyout fund. Question 4: What do investment banks do in the financial markets? Answer: Investment banks help both companies and the government raise money as well as making decisions such as whether or not to merge with another company and dealing with large transactions. Question 5: Describe the difference between the primary market and the secondary market. Answer: The primary market is mostly different from the secondary market because the companies actually receive the money earned from the securities sold and in a secondary market the stocks that the shareholders hold can be sold to the public and can be liquidated.

Question 7: What is the difference between debt security and an equity security? Answer: When a debt security is sold it is similar to a loan to a company where as when an equity security is sold the company is selling a piece of ownership in the company.

Chapter 3 Question 1: Describe the content of the balance sheet and the income statement. Answer: Income statements include operating, investment and financing activities. A balance sheet includes the assets, liabilities and equity. Question 4: What is a firms net working capital and what does it tell tell you about the liquidity of a firm? Answer: A firms net working capital is the difference between the current assets and current liabilities. If a firms assets are larger than their liabilities than they can be liquidated. Question 5: When a firms accounts receivable balance increases from one period to the next, the firm has experienced a use of cash. How is it that an increase in an asset such as accounts receivable represent a use of cash? Answer: Since accounts receivables are like a credit sale, the company has not received the cash for the goods or services sold. That is why the cash appears used although you have an increase in asset. Question 6: Appleby Southern Inc. had an accounts payable balance of $5 million at the end of 2009 and the balance rose to $7 million in 2010. What is the cash flow consequence of this change in accounts payable? Answer: Change in cash balance for 2010= ending balance for 2010-ending balance for 2009 $2 million= $7 million- $5 million