assig1
Assignment – 1
Introduction to Financial Management
Question 1: Separate the following list of assets into real assets and financial assets. What are the distinguishing characteristics of each type of asset ?
Delivery truck, factory building, corporate bond, inventory, corporate stock , land , note receivable, computer
Answer:
Real Assets: A real asset is an object or a thing which provide service of some kind, such as transportation, shelter or the ability to produce something. Here Delivery truck is part of transportation, factory building is providing a shelter, land and computer are things which have ability to produce something.
Financial Assets: These are the legal documents or piece of papers. Their value comes from the fact that they give their owners claim to certain future cash flows. Here the corporate bond , inventory , corporate stock and note receivable are the financial assets. Financial assets are purchased by people or companies to earn income with funds they don’t currently need . Buying such an asset is similar to opening a saving account in the bank and receiving interest .
Question 2: Companies are generally financed with a mix of debt and equity. How does the riskiness of the company as perceived by the financial market change as the mix shifts from all the equity to mostly debt? Why? Would changes in perceived risk induced by changes in the debt equity mix affect the company’s stock price?
Answer: Managing financial market risk goes to the heart of how governments operate. Governments wants to be able to oversee a growing economy, they want their citizen’s well being to improve overtime, and they need to be able to provide appropriate safety nets for the disadvantaged. To be able to this, government must have well-functioning financial market. And some time we had that. It seemed that we had thrown off the shackles of the lows of the traditional business cycle and that continued
Introduction to Financial Management
Question 1: Separate the following list of assets into real assets and financial assets. What are the distinguishing characteristics of each type of asset ?
Delivery truck, factory building, corporate bond, inventory, corporate stock , land , note receivable, computer
Answer:
Real Assets: A real asset is an object or a thing which provide service of some kind, such as transportation, shelter or the ability to produce something. Here Delivery truck is part of transportation, factory building is providing a shelter, land and computer are things which have ability to produce something.
Financial Assets: These are the legal documents or piece of papers. Their value comes from the fact that they give their owners claim to certain future cash flows. Here the corporate bond , inventory , corporate stock and note receivable are the financial assets. Financial assets are purchased by people or companies to earn income with funds they don’t currently need . Buying such an asset is similar to opening a saving account in the bank and receiving interest .
Question 2: Companies are generally financed with a mix of debt and equity. How does the riskiness of the company as perceived by the financial market change as the mix shifts from all the equity to mostly debt? Why? Would changes in perceived risk induced by changes in the debt equity mix affect the company’s stock price?
Answer: Managing financial market risk goes to the heart of how governments operate. Governments wants to be able to oversee a growing economy, they want their citizen’s well being to improve overtime, and they need to be able to provide appropriate safety nets for the disadvantaged. To be able to this, government must have well-functioning financial market. And some time we had that. It seemed that we had thrown off the shackles of the lows of the traditional business cycle and that continued