The Role Of Finance And Its Effect On Portfolios, Managing...

BSAD 310: Business Finance Whittier College Radoniqi Summer 2016 Quiz #1 1. Explain the role of finance in society. The common perception is that finance is associated with wealth management – enlarging portfolios, managing portfolio risks and tax liabilities, ensuring that rich grow richer. On the other hand, good society is considered to be the one in which people respect and appreciate each other. From that point of view it seems that finance and good society are like an oxymoron, finance goals are contradicting with those of society. There are conspiracy theories like Pax Morgana that the financial system is guilty for the Great Depression. That theory was revitalized nowadays with the 2008 financial crisis as well. The†¦show more content†¦Illustrate these decisions with examples. Among the most important decisions that a company takes are the following ones: dividend distribution, investment decisions and financing decisions. 2.1. At the end of each year when financial statements are verified by the auditors, the company management is facing the dilemma: what to do with the profit? The dilemma is related with the question whether to please shareholders by giving them large dividends or to keep the money in the company for investment purposes. This decision however does lie exclusively in the hands of the company management. If they decide large dividends, then the funds needed for investments and growth will be reduced significantly. This may jeopardize the company’s competitive position – without investments, the company’s future is always at stake. 2.2. If the company’s shareholders decide to vote small dividends then the management will have more funds for investments. As a rule companies approve those projects that have a positive net present value and the rate of return is higher than the hurdle rate. 2.3. If company profit is not sufficient to cover the investment plans, then the company has to start looking for external financing in order to fulfil its investment program. Financing however may be costly if company results are not good enough to motivate any bank to give a loan. If banks refuse a loan, then the company should try to raise funds on the stockShow MoreRelatedBasic Finance2034 Words   |  9 PagesFinance has a close relationship to a number of other business disciplines. It is important that we understand why a finance major needs these other skills and abilities.   Lets take them one at a time: 1. 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