BWFF2013 FINANCIAL MANAGEMENT I (A112) NAME: ____________________________ ( )

TUTORIAL WEEK 1 TOPIC: INTRODUCTION TO FINANCIAL MANAGEMENT

PART A: Conceptual 1. What is the difference in perspective between finance and accounting? Can you tell the difference between treasurers responsibilities and controllers responsibilities? 2. Explain the shareholder wealth maximization goal of the firm and how it can be measured. Make an argument for why it is a better goal than maximizing profit. 3. What are the three basic forms of business ownership? What are the advantages and disadvantages to each? 4. Look carefully at the diagram below:
1) Unlimited Sole Proprietorship General Partners Corporation Liability 2) Limited Limited Partners Owners of a corporation

Define the term limited liability and unlimited liability. 5. Between the three basic forms of business ownership, describe the ability of each form to access capital. 6. What is the difference between the primary market and the secondary market? 7. What conflicts of interest can arise between managers and stockholders? 8. The primary goal of a financial manager is to maximize shareholders' wealth. When you see firms like Enron imploding from the behavior of executive management, how can you justify your definition?

BWFF2013 FINANCIAL MANAGEMENT I (A112) NAME: ____________________________ ( )

PART B: True/False Instruction: Please tick ( / ) the box for your answer. TRUE FALSE 1. 2. 3. 4. The goal of the firm should be the maximization of profit. The goal of profit maximization is equivalent to the goal of maximization of share value. One of the problems associated with profit maximization is that it ignores the timing of a projects return. In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm. The corporation is the best form of organization in terms of raising capital. There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership. General partners have limited liabilities. There are a significant number of legal requirements to follow when establishing a sole proprietorship. Limited partners may actively manage the business. The life of a corporation is not dependent upon the status of the investors. In a sole proprietorship, the owner is personally responsible without limitation for the liabilities incurred. In a general partnership, there is a distinction between business and personal assets. Shareholder wealth is measured by the market value of the firms common stock. The agency problem arises due to the separation of ownership and control in a firm. A corporation is a "legal person" that can be sued. The role of financial markets is to bring savers and users of funds together. The "new issues market" where first-time security issues are offered for sale is called the secondary market. All money market instruments are short-term debt. Primary and secondary markets are markets for short-term and longterm securities, respectively. The money market involves trading of securities with maturities of one year or less while the capital market involves the buying and selling of securities with maturities of more than one year.

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