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Questions and Answers
What is the primary goal of a financial manager appointed by shareholders?
What is the primary goal of a financial manager appointed by shareholders?
Why is cash an important factor in financial decision-making?
Why is cash an important factor in financial decision-making?
What is the significance of time in financial decision-making?
What is the significance of time in financial decision-making?
What is the effect of uncertainty on the value of a future cash flow?
What is the effect of uncertainty on the value of a future cash flow?
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What is a characteristic of a liquid market?
What is a characteristic of a liquid market?
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What is the relationship between the value of the firm and the number of shares on issue?
What is the relationship between the value of the firm and the number of shares on issue?
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What is the primary objective of a financial manager in terms of share price?
What is the primary objective of a financial manager in terms of share price?
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Why is risk an important consideration in financial decision-making?
Why is risk an important consideration in financial decision-making?
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What is the primary goal of a financial manager in a corporation?
What is the primary goal of a financial manager in a corporation?
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What is the main difference between a real asset and a financial asset?
What is the main difference between a real asset and a financial asset?
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What is the main advantage of a corporation as a type of firm?
What is the main advantage of a corporation as a type of firm?
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What is the purpose of a financial manager's day-to-day cash flow management?
What is the purpose of a financial manager's day-to-day cash flow management?
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What is the main difference between a private company and a public company?
What is the main difference between a private company and a public company?
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What is the main goal of a financial manager when making investment decisions?
What is the main goal of a financial manager when making investment decisions?
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What is the main disadvantage of a sole trader as a type of firm?
What is the main disadvantage of a sole trader as a type of firm?
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If you submit a 'market order' to buy a stock, what price will you pay?
If you submit a 'market order' to buy a stock, what price will you pay?
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What is the primary objective of a financial manager in a corporation?
What is the primary objective of a financial manager in a corporation?
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What is a characteristic of a liquid market?
What is a characteristic of a liquid market?
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What is the main difference between a primary market and a secondary market?
What is the main difference between a primary market and a secondary market?
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What is the bid price in a stock exchange?
What is the bid price in a stock exchange?
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What is the ASX, and what did it stand for in the past?
What is the ASX, and what did it stand for in the past?
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What is one of the three critical factors in finance, and why is it important?
What is one of the three critical factors in finance, and why is it important?
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What is one of the three main ways to issue shares, and what is its advantage?
What is one of the three main ways to issue shares, and what is its advantage?
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What is the main advantage of a corporation, compared to a sole trader or partnership?
What is the main advantage of a corporation, compared to a sole trader or partnership?
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Study Notes
Financial Management Goals
- The goal of the financial manager is to maximize the wealth of shareholders, which is equivalent to maximizing the value of the firm and share price.
- The financial manager is appointed by the shareholders to manage the firm and make decisions on their behalf.
Critical Factors in Finance
- There are three critical factors in finance: cash, time, and risk.
- Cash is important because only cash can be used to purchase things, pay debts, and satisfy consumption preferences.
- Time is important because money has a time value, and the value of a dollar is different depending on when it is received.
- Risk is important because the future is uncertain, and the probability of receiving a future cash flow determines its value.
Market Liquidity
- A market is "liquid" if it allows for the easy and quick conversion of securities into cash.
- A liquid market is necessary for the efficient allocation of resources.
Australian Stock Exchange (ASX)
- ASX stands for Australian Securities Exchange.
- In the past, ASX stood for Australian Stock Exchange.
- The change took place to reflect the broader range of securities traded on the exchange.
Primary and Secondary Markets
- A primary market is where new securities are issued, and companies raise capital from investors.
- A secondary market is where existing securities are traded, and investors buy and sell securities among themselves.
Bid and Ask Prices
- The bid price is the highest price at which a buyer is willing to buy a security.
- The ask price is the lowest price at which a seller is willing to sell a security.
- The ask price is higher than the bid price.
Types of Firms
- There are three types of firms: sole traders, partnerships, and corporations.
- Sole traders are the most common type of firm in terms of the number of businesses.
- Corporations dominate the economy in terms of total revenue generated.
Financial Assets
- Financial assets are securities that can be easily converted into cash.
- Examples of financial assets include cash, accounts receivable, and ordinary shares.
Financial Decisions
- The two main types of decisions made by a financial manager are investment decisions and financing decisions.
- Investment decisions involve deciding on the allocation of funds to different projects or assets.
- Financing decisions involve deciding on the source of funds, such as debt or equity.
Real and Financial Assets
- Real assets are physical assets, such as buildings, machines, and inventory.
- Financial assets are securities that can be easily converted into cash.
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Description
What is the primary goal of a financial manager? Maximizing shareholder wealth, firm value, or share price?
