Beruflich Dokumente
Kultur Dokumente
Autumn 2009
CH1:QP3, 11, 18, 19 CH2: QP9, 12, 22, 25
1.3 Cash flows: Explain the difference between profitable and unprofitable firms.
Solution:
A profitable firm is able to generate more than enough cash through its
creditors. If the firm has residual cash flows after all, such residual cash can be
fails to generate sufficient cash flows to pay operating expenses, creditors and
taxes. Firms that are unprofitable over time may be forced to declare
bankruptcy.
1.11 Organizational form: Who are the owners in a corporation, and how is their
ownership represented?
Solution:
say FIN221 Ltd has 100 outstanding shares and you own 1 share. This
1.18 Firm’s goal: What is the appropriate goal of financial managers? Can
Solution:
value of the firm’s stock price. Managers’ decisions affect the stock price in
many ways as the value of the stock is determined by the future cash flows the
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firm can generate. Managers can affect the cash flows by, for example,
1.19 Firm’s goal: What are the major factors affecting stock price?
Solution:
financial decisions that affect its cash flows. All of capital budgeting decision,
financing decision and working capital management decision affect cash flows
2.9. Primary Markets: Identify whether the following transactions are primary
account.
Solution:
• secondary
• secondary
• primary
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2.12.Financial Institutions: What are some of the ways in which a financial
Solution:
A financial intermediary can raise money through the sale of financial products
• The major sources of funds for commercial banks are consumers: checking
that protect individuals against the loss of income from a family member’s
premature death.
2.22 Capital Markets: How do capital market instruments differ from money
market instruments?
Solution:
maturities of less than one year are bought and sold. Financial instruments
sold in money markets have very short maturities, usually overnight to 180
days, are highly marketable in that they can be easily converted into cash
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Capital market is the segment of the marketplace where capital goods,
risk.
2.25 Interest Rates: What is the real rate of interest, and how is it determined?
Solution:
The real rate of interest measures the return earned on savings, and it
represents the cost of borrowing to finance capital goods. The real rate of
projects and the rate of return businesses can expect to earn on investments
Graphically, it is that point when the desired saving level equals the desired