Finance Must Be Plagiarism-Free And 100% Original Assignment

Finance Must Be Plagiarism Free And 100% Originalassignment Overview

This assignment will cover both the role of the financial manager as well as the introductory material on stock market investing. Make sure to fully review all of the required reading material before you begin this assignment. Note that all of the questions are conceptual in nature and will not require any computations (you will do plenty of computations for your Modules 1-3 Cases). But make sure to thoroughly explain your reasoning behind each answer, and to support your answer using references to the required background readings. Write a three- to five-page paper answering the following questions:

1. Suppose you own a small business. You have two choices on how to run the business. One is to manage the business yourself, the other is to hire a manager and spend your time vacationing in Hawaii most of the time. Which situation is more likely to induce agency costs, and what kind of ways could you use to deal with these agency costs? Explain your answer with references to the required background readings.
2. In your small business you have a finance department with a CFO, controller, and treasurer. For the following scenarios, explain which of these three financial executives would be the most likely to work on the issue based on the descriptions of the roles of the CFO, controller, and treasurer from Brealey, et al. (2009) in the background readings:
   • a. You suspect that a lower-level employee has embezzled around $50,000 over the last three years and you want to try to find out who based on past financial records. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller?
   • b. Your chief marketing officer wants to take out a large loan to finance a major advertising campaign that he claims will bring in large sums of new profits over the next few years. However, your chief operating officer wants to take out a large loan to purchase some new equipment and machinery that she claims will save your company a lot of money over the next few years. You would like to see some estimates about which of the two projects will be most likely to increase profits enough to be able to pay back the loan. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller?
3. Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real versus financial assets in Brealey, et al. (2009):
   • a. A certificate of deposit at your local bank
   • b. A two-bedroom house
   • c. $50,000 worth of bonds from an airline company
4. Do some research on Facebook and General Motors using a web page such as investing.com for financial information. Based on their P/E ratios, dividend yields, and other information, compare and contrast these two stocks. How would you classify these stocks: growth stock, a value stock, or an income stock? Explain your reasoning using both concepts from the background readings as well as any information you find on these two companies. Your answer to this question should be 1 to 1-1/2 pages.

Paper For Above instruction

The complex nature of financial management encompasses understanding agency costs, roles of financial executives, distinctions between asset types, and analyzing stock classifications based on financial metrics. This paper explores these key areas through conceptual discussion, supported by references to foundational financial literature and current market data.

Agency Costs in Small Business Management

Agency costs arise when there is a conflict of interest between principals (owners) and agents (managers). In the context of a small business, the scenario where an owner delegates daily operations to a manager, especially when the owner is disengaged or chooses to vacation, significantly increases the likelihood of agency costs. The manager may have personal incentives misaligned with the owner’s interests, leading to expenditures or strategies that do not maximize shareholder wealth (Jensen & Meckling, 1976).

To mitigate agency costs, owners of small businesses can implement monitoring mechanisms such as regular financial reporting, performance-based compensation, and formal auditing processes (Ross, Westerfield, & Jaffe, 2013). Additionally, aligning incentives through profit-sharing arrangements or equity stakes can encourage managers to act in the best interests of the owner, reducing information asymmetry and opportunistic behaviors (Fama & Jensen, 1983).

Roles of CFO, Controller, and Treasurer in Financial Management

The roles of CFO, controller, and treasurer are distinct yet interrelated. According to Brealey et al. (2009), the controller primarily manages accounting, financial reporting, and internal controls. The CFO oversees financial planning, risk management, and strategic financial decision-making. The treasurer handles liquidity management, financing, and investments.

In the case of suspected embezzlement of $50,000, the controller's expertise in financial records and internal controls makes them most suited to investigate anomalies in past financial statements. Conversely, the treasurer would be focused on managing cash flows and funding, while the CFO would oversee strategic implications (Brealey et al., 2009).

When evaluating projects such as a large advertising campaign or equipment purchase, the CFO's strategic overview and risk assessment capabilities position them well to analyze prospective profitability and evaluate which project aligns better with the company's financial goals. The treasurer's focus on funding and cash management complements this analysis, whereas the controller concentrates on accurate financial reporting (Brealey et al., 2009).

Real Assets vs. Financial Assets

Real assets are tangible assets used in production or as physical property, whereas financial assets represent claims on future cash flows or ownership rights without intrinsic physical value (Brealey et al., 2009).

a. A certificate of deposit (CD) at a bank signifies a financial claim on the bank’s assets, thus categorizing it as a financial asset.

b. A two-bedroom house is a physical, tangible asset used either for personal residence or potential income generation through rental, qualifying it as a real asset.

c. Bonds from an airline are debt instruments representing claims on future payments, classifying them as financial assets since they embody contractual rights to cash flows.

Stock Market Analysis: Facebook vs. General Motors

Analyzing Facebook (Meta Platforms) and General Motors involves evaluating their financial metrics such as P/E ratios and dividend yields. Facebook typically exhibits a high P/E ratio, reflecting investor expectations of high growth potential, fitting the profile of a growth stock. The company is known for reinvesting earnings into innovation rather than paying dividends, aligning it with growth stocks (Smith, 2012).

In contrast, General Motors has a lower P/E ratio and offers dividends, appealing to income investors and fitting the classification of an income or value stock. GM's steady dividend payments and stable earnings make it attractive to investors prioritizing income (Kiplinger’s, 2008).

The comparison indicates Facebook’s prominence as a growth stock, driven by rapid expansion and reinvestment, while GM appeals to investors seeking income and undervalued assets with stable dividend streams (Valentine, 2012). These distinctions help investors diversify portfolios based on risk appetite and investment objectives.

Conclusion

Understanding agency costs, the roles of financial executives, asset classifications, and stock types are foundational in effective financial management. Implementing appropriate corporate governance mechanisms, leveraging expert roles, and analyzing financial metrics facilitate better decision-making and value creation for businesses and investors alike.

References

• Brealey, R., Myers, S., & Marcus, A. (2009). Fundamentals of Corporate Finance. McGraw-Hill.
• Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Kiplinger’s Personal Finance. (2008). The basics for investing in stocks.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance. McGraw-Hill Education.
• Smith, A. (2012). What's the difference between a growth stock and a value stock? The Motley Fool.
• Valentine, W. (2012). What is the P/E ratio? The Wealth Academy.
• Investing.com. (2023). Financial data for Facebook and General Motors. Retrieved from https://www.investing.com/
• South Carolina Attorney General. (2008). Electrical Safety Inspection documentation (contextual reference for safety standards).