Unit 1 Assessment: Exploring Key Financial Concepts and Principles

This assignment provides a comprehensive overview of fundamental finance principles. It discusses three main organizational forms used in forming a business: partnership, sole proprietorship, and joint stock company. It explains a firm's goal from both a shareholder and stakeholder perspective, emphasizing the importance of setting financial goals and ensuring their fulfillment through successful investment decisions and budget management. The assignment highlights the importance of cash flows in finance, noting their role in ensuring flexibility, effective working capital management, and uninterrupted production. It further elucidates the concept of incremental cash flow and its significance in evaluating new projects. Finally, it outlines five fundamental principles underlying the study of finance: the time value of money, the risk-reward relationship, market efficiency, and potential conflicts of interest. Desklib provides this and other solved assignments for students.

Running head: UNIT 1 ASSESSMENT
Name of the Student
Name of the University
Author note

1
UNIT 1 ASSESSMENT
Table of Contents
Answer to Q1:............................................................................................................................2
Answer to Q2:............................................................................................................................2
Answer to Q3:............................................................................................................................2
Answer to Q4:............................................................................................................................3
Answer to Q5:............................................................................................................................3
References:.................................................................................................................................4

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UNIT 1 ASSESSMENT
Answer to Q1:
There are mainly three different types of business forms. Partnership refers to the coming
together of more than one partners in forming a business based on a pre-determined
agreement. In sole proprietorship, only one person forms his or her own business, thereby
taking the profits and bearing the losses. In the case of joint stock Company, many people
come together for forming a company (Belderbos et al., 2014). It is financed with the help of
shares held by the shareholders, who are alsotheowners.
Answer to Q2:
The stakeholder as well as the shareholders are responsible for guaranteeing the success of
their business. Apart from earning profits, setting of financial goals and ensuring fulfilment
of all these goals and objectives. This objective is achieved by making successful decisions in
the businesses investments by correctly managing the budget, selecting the products for
investing into and adding these products to the inventory and choosing the appropriate capital
structure for financing the investments. This will ensure its long term viability and existence.
Answer to Q3:
Cash occupies one of the most important position in the hierarchy of assets of any business,
because of many reasons. It ensures flexibility in the business, helps in effective working
capital management, it further assists in ensuring uninterrupted production and ensures the
overall growth of the business is not compromised at any time. Cash flows help in massive
improvement of the Key performance indicators (Brown, Huang & Pinello, 2013). It helps in
taking important financial decisions and also plays a vital role in seizing important business
opportunities.

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UNIT 1 ASSESSMENT
Answer to Q4:
Incremental cash flow refers to the additional cash flow which has been received from
undertaking a new project. A positive increment proves the positive financial impact the new
project has on the business.
It helps in evaluating the returns from the new project, restores the faith of the stakeholders
into the business, it also helps in the process of evaluation of any business project by helping
in the calculations of the payback period, in association with various capital budgeting
techniques.
Answer to Q5:
Cash flow is one of the principles of finance, which drives a business into the future by
evaluating the present. Money has its time value, which devalues with each passing day, this
again is an important financial principle. Another principle tells risk requires rewards, which
acts as an incentive for undertaking more risks (Robinson & Sensoy, 016). In an efficient
market, the market prices are generally correct and truly reflect all the information associated
with the goods. Lastly, conflict of interest’s cause agency problems.

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UNIT 1 ASSESSMENT
References:
Belderbos, R., Cassiman, B., Faems, D., Leten, B., & Van Looy, B. (2014). Co-ownership of
intellectual property: Exploring the value-appropriation and value-creation
implications of co-patenting with different partners. Research Policy, 43(5), 841-852.
Brown, L. D., Huang, K., & Pinello, A. S. (2013). To beat or not to beat? The importance of
analysts’ cash flow forecasts. Review of Quantitative Finance and Accounting, 41(4),
723-752.
Robinson, D. T., & Sensoy, B. A. (2016). Cyclicality, performance measurement, and cash
flow liquidity in private equity. Journal of Financial Economics, 122(3), 521-543.