Read the Chapter 1 Mini Case in Financial Management: Theory and Practice. Complete Parts 1 and 2.
Part 1: Using complete sentences and academic vocabulary, please answer questions a through d.
Part 2: Using the mini case information, write a 250-word letter of intent discussing specific strategies for how you will conduct your start-up business with personal and professional integrity.
3/9/23, 7:58 PM Print Preview
https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=5932631885006174207026324209&eISBN=9781337909686&id=1752166711&snapshotId=3401… 1/2
(1)
(2)
(3)
Chapter 1: An Overview of Financial Management and the Financial Environment Mini Case
Book Title: Financial Management: Theory and Practice
Printed By: Gregory Dayes (GDayes@my.gcu.edu)
© 2020 Cengage Learning, Cengage Learning
Chapter Review
Mini Case
Assume that you recently graduated and have just reported to work as an investment
advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle
DellaTorre, a professional tennis player who has just come to the United States from Chile.
DellaTorre is a highly ranked tennis player who would like to start a company to produce and
market apparel she designs. She also expects to invest substantial amounts of money
through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in
general terms what will happen to her money. Your boss has developed the following set of
questions you must answer to explain the U.S. financial system to DellaTorre.
a. Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a
start-up to a major corporation. List the advantages and disadvantages of
each form.
c. How do corporations go public and continue to grow? What are agency
problems? What is corporate governance?
d. What should be the primary objective of managers?
Do firms have any responsibilities to society at large?
Is stock price maximization good or bad for society?
Should firms behave ethically?
e. What three aspects of cash flows affect the value of any investment?
f. What are free cash flows?
g. What is the weighted average cost of capital?
h. How do free cash flows and the weighted average cost of capital interact to
determine a firm’s value?
3/9/23, 7:58 PM Print Preview
https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=5932631885006174207026324209&eISBN=9781337909686&id=1752166711&snapshotId=3401… 2/2
i. Who are the providers (savers) and users (borrowers) of capital? How is
capital transferred between savers and borrowers?
j. What do we call the cost that a borrower must pay to use debt capital? What
two components make up the cost of using equity capital? What are the four
most fundamental factors that affect the cost of money, or the general level of
interest rates, in the economy?
k. What are some economic conditions that affect the cost of money?
l. What are financial securities? Describe some financial instruments.
m. List some financial institutions.
n. What are some different types of markets?
o. Along what two dimensions can we classify trading procedures?
p. What are the differences between market orders and limit orders?
q. Explain the differences among broker-dealer networks, alternative trading
systems, and registered stock exchanges.
r. Briefly explain mortgage securitization and how it contributed to the global
economic crisis.
Chapter 1: An Overview of Financial Management and the Financial Environment Mini Case
Book Title: Financial Management: Theory and Practice
Printed By: Gregory Dayes (GDayes@my.gcu.edu)
© 2020 Cengage Learning, Cengage Learning
© 2023 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means –
graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.