Solutions of Financial Management
Chapter 1
An Overview of Financial Management
Learning Objectives
After reading this chapter, students should be able to:
◆ Identify the three main forms of business organization and describe the advantages and disadvantages of each one.
◆ Identify the primary goal of the management of a publicly held corporation, and understand the relationship between stock prices and shareholder value.
◆ Differentiate between what is meant by a stock’s intrinsic value and its market value and understand the concept of equilibrium in the market.
◆ Briefly explain three important trends that have been occurring in business that have implications for managers.
◆ Define business ethics and briefly explain what companies are doing in response to a renewed interest in ethics, the consequences of unethical behavior, and how employees should deal with unethical behavior.
◆ Briefly explain the conflicts between managers and stockholders, and explain useful motivational tools that can help to prevent these conflicts.
◆ Identify the key officers in the organization and briefly explain their responsibilities.
Lecture Suggestions
Chapter 1 covers some important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned but not covered in class. We spend the first day going over the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we talk about the topics that will be covered in the course and the structure of the book. We also discuss briefly the fact that it is assumed that managers try to maximize stock prices, but that they may have other goals, hence that it is useful to tie executive compensation to stockholder-oriented performance measures. If time permits, we think it’s worthwhile to spend at least a full day on the chapter. If not, we ask students to read it on their own, and to
An Overview of Financial Management
Learning Objectives
After reading this chapter, students should be able to:
◆ Identify the three main forms of business organization and describe the advantages and disadvantages of each one.
◆ Identify the primary goal of the management of a publicly held corporation, and understand the relationship between stock prices and shareholder value.
◆ Differentiate between what is meant by a stock’s intrinsic value and its market value and understand the concept of equilibrium in the market.
◆ Briefly explain three important trends that have been occurring in business that have implications for managers.
◆ Define business ethics and briefly explain what companies are doing in response to a renewed interest in ethics, the consequences of unethical behavior, and how employees should deal with unethical behavior.
◆ Briefly explain the conflicts between managers and stockholders, and explain useful motivational tools that can help to prevent these conflicts.
◆ Identify the key officers in the organization and briefly explain their responsibilities.
Lecture Suggestions
Chapter 1 covers some important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned but not covered in class. We spend the first day going over the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we talk about the topics that will be covered in the course and the structure of the book. We also discuss briefly the fact that it is assumed that managers try to maximize stock prices, but that they may have other goals, hence that it is useful to tie executive compensation to stockholder-oriented performance measures. If time permits, we think it’s worthwhile to spend at least a full day on the chapter. If not, we ask students to read it on their own, and to