BFN20203 FINANCIAL MANAGEMENT
TUTORIAL 1
.
PART A
(10 marks)
Mohammad Badrul Iman bin Mohd Taufik
2132023090033
1. B
2. A
3. B
4. A
5. C
6. C
7. B
8. B
9. B
10. A
PART B
(40 marks)
This part consists of TWO (2) questions, please answer all the questions.
a) Financial management can defined as Activities that earn and use of capital
collecting , using and managing. Focuses on the decision making toward creating
wealth. Financial management is very important because It needs to meet the
requirement of the business concern. Each and every business concern must maintain
adequate amount of finance for their smooth running of the business concern and also
maintain the business carefully to achieve the goal of the business concern.
b) Borrowers, lenders, and investors exchange current funds to finance projects,
either for consumption or productive investments, and to pursue a return on their
financial assets. The financial system also includes sets of rules and practices that
borrowers and lenders use to decide which projects get financed, who finances
projects, and terms of financial deals.
c) Unlimited liability is when one or more business owners or partners are liable for
their company's debts and tax compliance. It is very different to a limited liability
company (LLC), whose business structure is designed specifically to insulate
individual partners or stakeholders from risk.
a) The primary market is where securities are created, while the secondary market is
where those securities are traded by investors. In the primary market, companies sell
new stocks and bonds to the public for the first time, such as with an initial public
offering.
b) the three form of business organisation includes sole proprietorship, partnership
and, corporations.
Advantages of a sole proprietorship include:
• Total control of the business: As the sole owner of your business, you have
full control of business decisions and spending habits.
• Low start-up costs: While you may need to register your business and obtain
a business occupancy permit in some places, the costs of maintaining a sole
proprietorship are much less than other business structures.
Disadvantages include:
• Unlimited liability: You are personally responsible for all business debts and
company actions under this business structure.
• Lack of structure: Since you are not required to keep financial statements,
there is a risk of becoming too relaxed when managing your money.
And Some advantages of partnerships include:
• Easy to establish: Compared to other business structures, partnerships require
minimal paperwork and legal documents to establish.
• Partners can combine expertise: With more than one like-minded individual,
there are more opportunities to increase their collaborative skillset.
Disadvantages to consider:
• Possibility for disagreements: By having more than one person involved in
business decisions, partners may disagree on some aspects of the operation.
• Difficulty in transferring ownership: Without a formal agreement that
explicitly states processes, a business may come to a halt if partners disagree
and choose to end their partnership.
And for corporations, Advantages of corporations include:
• Owners aren't responsible for business debts: In general, the shareholders of a
corporation are not liable for its debts. Instead, shareholders risk their equity.
• Quick capital through stocks: To raise additional funds for the business,
shareholders may sell shares in the corporation.
Corporations Disadvantages include:
• Double taxation for C-corporations: The corporation must pay income tax at
the corporate rate before profits transfer to the shareholders, who must then
pay taxes on an individual level.
• Owners are less involved than managers: When there are several investors
with no clear majority interest, the management team may direct business
operations rather than the owners.
c) Contingent compensation in the form of bonuses and stock grants can be very
helpful in aligning the interests of managers with those of shareholders. If the
manager's compensation increases when the stock price goes up, this manager will
have an incentive to maximize the value of all shares. In larger companies, having
several shareholders who are familiar with the business and can act as spokespeople
for the other shareholders is an effective and well-tried device to minimise conflict.
Shareholder agreements should be regularly reviewed to reflect changes in the
company's operation and direction.
d) Stock price maximization happens when a stock's market price reaches its highest
possible level. Profit maximization occurs when a firm's net income reaches its
highest possible level over some time (generally, one year). While the measures
mentioned above can align, this is not necessarily the case. To summarize, while
profit maximization focuses more on increasing a company's short-term earnings,
wealth maximization is a comprehensive goal that focuses on enhancing the overall
value of the business in the long run, thus maximizing the shareholders' wealth.
