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Corporate Financial Management -FNCE5010 | Assignment

   

Added on  2020-03-13

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CORPORATE FINANCIALMANAGEMENT

Corporate financial managementAnswer-1The implications of the dominance of large financial institutions in corporate affairs are that when the corporate funds are in ownership of large financial institutions in the majority, it meansthat the individual investors are at the difficulty in investing with the corporate directors (Albrecht et. al, 2012). This may led to increase in the value of stocks at the disposal of individual investors due to the fact that when there are mediators and agents in the form of Mutual Fund Companies, Investment Banks, etc the prices of the stocks will rise with the amountof agency commissions and brokerage. Hence, the public will find it difficult to invest in corporate sector and the corporate control will solely rest with this financial institution which might be a threat to the corporate in long run. An example of this can be the 73% of ownership of U.S Corporate which is substantial percentage and is held by the large financial institutions. If these separate financial institutions merge by consent some day, the corporate might have to lose the rest of ownership as well.But if we see this on a positive side, the public who invests through these financial mediators find it easy to build a portfolio of different company stocks through them. Hence, the indirect investment by the public is also beneficial for corporate (Brigham & Daves, 2012).Answer-2The independent directors are recommendable as their views in the company matters are unbiased as they have no financial interest in the company and they shall always provide an opinion which shall suit the company in long-term and short term (Choi & Meek, 2012). As they are not financially interested in the company their decisions shall always be for the betterment of the company and its shareholders. All their efforts shall be in the interest of the company’s well-being. They work selflessly in the company and would not indulge in fraudulent activities to increase the share price.Various advantages and disadvantages of having independent directors are:Advantages-2

Corporate financial management1.An independent director has an unbiased opinion and he has an independent approach towards the challenges and opportunities and hence can suggest the company about the same keeping in mind all the parties and stakeholders.2.He may help in determining the fair compensation and remuneration payable to those persons who are part of the company but are family members of the executive members of the company. This is a huge challenge in which unbiased opinion is a must (Deegan, 2011).3.He ensures corporate accountability and transparency in the company.Disadvantages-1.His reliability on biasness cannot be judged quickly.2.He might indulge in fraudulent activity if less remuneration is given.Answer-3Yes, there is the difference between the goal of maximizing current share price and the goal of maximizing future stock price. In the former case, the financial managers aim at increasing current share price by focusing on business operations and in this way the market price of shares rise. As the business of the company rises, the reputation of company increases and the market price of the company increase. Shareholders fund is equal to total capital and reserves and surplus of the company (Brealey et. al, 2011). More the profits more shall be the shareholder's funds, in turn, the current share price. On the other hand, Maximizing future share price can be done only by investing in capital assets and securities having long maturities. Capital Assets shall increase the future capital base of the company. It is like investing in the future for future gains and appreciations. The future stock price shall be maximized if the company has strong and stable asset base (Davies & Crawford, 2012). The company investment policy shall be helpful in increasing or decreasing future stock price. In case, the company has invested in long-term assets. Projects or securities, it shall reap good future results which shall enhance future share prices as well. 3

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