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Unformatted text preview: Q1-1.Why must a financial manager have an integrated understanding of the five basic finance functions? Why is the corporate governance function considered a finance function? Has the risk-management function become more important in recent years?A1-1.A financial manager needs to know all five basic finance areas because they all impact his or her job. While the managers primary responsibilities may be in raising money or choosing investment projects, the manager also needs to know about capital markets and debt/equity optimal levels, be able to manage risks of the business and governance of the corporation. Corporate governance is a function because a manager wants to act in the best interest of its shareholders. New methods of managing risk have been developed in recent years, and a manager must be aware of these in order to maximize shareholder value.Q1-4.Can there be a difference between profit maximization and shareholder wealth maximization? If so, what could cause this difference? Which of the two should be the goal of the firm and its management?A1-4. Profit maximization and maximizing shareholder wealth could conflict. For example, a company could accept very high return (and also very high risk projects) that do not return enough to compensate for the high risk. Profits, or net income, are accounting numbers and therefore subject to manipulation. It would be possible to show positive profits when shareholder wealth was actually being decreased....
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This note was uploaded on 08/02/2008 for the course BUSFIN 1030 taught by Professor Zutter during the Spring '08 term at Pittsburgh.
- Spring '08