University Business Finance Tutorial 1 Assignment Solution

This assignment solution addresses key concepts in business finance, providing answers to three questions. The first question explores the three crucial decisions a finance manager must make: investment, financing, and dividend decisions. The second question analyzes the advantages and disadvantages of these three decisions. The third question delves into the initial public offering (IPO) process, differentiating between primary and secondary markets, and explaining the functions of the Australian Securities Exchange (ASX) as an auction market, contrasting it with dealer markets. The solution incorporates relevant academic references to support the analysis.

Running head: BUSINESS FINANCE
BUSINESS FINANCE
Name of Student
Name of University
Author notes

2BUSINESS FINANCE
Table of Contents
Answer to question 1..................................................................................................................3
Answer to question 2..................................................................................................................3
Answer to question 3..................................................................................................................5
References..................................................................................................................................7

3BUSINESS FINANCE
Answer to question 1
The Finance manager should take three key decision in order to achieve their business
goals. The top 3 key verdict that finance executive should take is given below.
Investment decision
Investment decision particularly relates with the total assets to be detained by the
firm, business risk complexion of the firm and composition of these assets. Since the funds
involves cost and of limited quantity, it is the most important business decision (Pilbeam
2018). In order to achieve target wealth maximization, proper utilisation of resources is
necessary. The finance managers had to asses various projects before obligating the funds.
Financing decision
After the firm had occupied the investment, the finance manager needs to choose the
best means of financing commitments and since firms frequently make new investments, this
decision is very crucial as any failure to make financial commitment towards that investment
can increase business risk.
Dividend decision
The third foremost decision of finance manager relates to payment of profit to
investors who supplied wealth to the firm. The dividend decision relates with the quantum of
profits to be distributed amongst shareholders (Tseng et.al 2018).
Answer to question 2
The advantages and disadvantages of investment decision, financing decision and
dividend decision is given below.
Advantages of investment decision

4BUSINESS FINANCE
 Confirms the market that the company is in suitable position and has the strength to
compete in the market.
 Proper investment decision gives investor the opportunity to take control of the
management as well as to bring up expertise, market share which overall improves the
state of the company (Arianti 2018).
Disadvantages of investment decision
 Investment decisions are mostly long term and cannot be reversible.
 Wrong investment decision taken by managers can affect the long-term durability of
the company as well as the risk remains subjective to managers’ perception.
Advantages of financing decision
 Equity financing is less riskier than as there is no fixed loan payments.
 Proper financing decision aids to solve any credit problems of the business.
 Proper financing decision aids the firm to grow in the market.
 Investors generally invests in a firm for long time therefore there are less chance of
the firm to go default.
Disadvantages of financing decision
 Investors sometimes expects higher return on earnings than firm’s earning which
impacts the firms finance capital.
 The owner of the firm has to provide some control to the additional investors which
can sometimes fail the operation of the business (Doan 2020).
Advantages of dividend decision

5BUSINESS FINANCE
 Often companies cannot invest all earnings profitably and will waste excess retained
earnings therefore dividend decision aids the firm with proper financing.
 Dividends are generally more reliable than stock therefore company can improve its
market position with effective dividend decision.
Disadvantages of dividend decision
 Poor dividend decision sometimes makes the manager to reinvest the dividends,
which leaves an investor with less shareholders equity than they would have if the
dividends were not paid (Ekaningtias 2018).
 Poor dividend decision force the investors to take distribution that they may not
wanted at the level, which the company has chosen.
Answer to question 3
To understand which market does IPO transacts, it is important to understand primary
and secondary market. Primary market is a type of market, that creates security and sells new
stocks and bonds to the public for the 1st time. The stock market, also known as secondary
market where investors sells existing issued securities without issuing company’s
involvement. In many cases, the new issue takes the system of an initial public offering
(IPO). Once investors purchase securities from the primary capital market, the company that
offers the securities appoints an underwriting firm to review it and create a brochure outlining
the price and other details of the securities to be issued. Initial Public Offering (IPO) is a new
security therefore; it is transacted through primary market. IPO is primary market transaction
(Cohen, Carvalho and Tyler 2017).
Australian Security Exchange (ASX) is the auction market of Australia, which
functions as market operative, clearing house and payment system facilitator. The activities
of ASX includes primary and secondary market service including the raising, hedging and

6BUSINESS FINANCE
allocation of capital flows, securities settlement and risk transferor. ASX also supervises
compliance with its functioning rules, promotes standards of corporate governance among
Australia’s listed companies besides helps to train retail investors (Cooke et.al 2019).
Auction market refers to market, which by buyer point out highest price they are
willing to pay for a product or service and seller determines the lowest price they are willing
to sell their products. On the other hand, dealer market is a financial market where dealers
posts prices at which they are eager to buy or sell a specific investment or security (Chung
et.al 2020).

7BUSINESS FINANCE
References
Arianti, B.F., 2018. THE INFLUENCE OF FINANCIAL LITERACY, FINANCIAL
BEHAVIOR AND INCOME ON INVESTMENT DECISION. EAJ (ECONOMICS AND
ACCOUNTING JOURNAL), 1(1), pp.1-10.
Chung, Y.P., Kim, S.T., Kutsuna, K. and Smith, R.L., 2020. Which firms benefit from market
making?. Financial Markets and Portfolio Management, 34(1), pp.33-63.
Cohen, L.R., Carvalho, I.C. and Tyler, D.C., 2017. The Return of the IPO. Int'l Fin. L.
Rev., 36, p.40.
Cooke, S., Perry, M., Conway, M.L., Sheridan, A. and Marimuthu, S.B., 2019. Relationships,
Risk and Remuneration: ASX200 Directors’ practice of the ASX Corporate Governance
Council Principles.
Doan, T., 2020. Financing decision and firm performance: Evidence from an emerging
country. Management Science Letters, 10(4), pp.849-854.
Ekaningtias, D., 2018. The Effect of Diversity of the Nationality, Board of Director,
Investment Decision, Financing Decision, and Dividend Policy to Company
Values. International ScientificJournal Theoretical & Applied Science, 65(9), pp.82-92.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Tseng, M.L., Wu, K.J., Hu, J. and Wang, C.H., 2018. Decision-making model for sustainable
supply chain finance under uncertainties. International Journal of Production
Economics, 205, pp.30-36.