ASSIGNMENT 2 (38 PTS)

I. Refer to the following simple Income Statements and Cash Flows

COMPANY A

Income Statement Cash Flow

Sales P 100, 000 Collection from Customers P0

Less: Cost 50, 000 Payment of Expenses 50, 000

Profit P 50, 000 Net Cash Flow (P50, 000)

COMPANY B

Income Statement Cash Flow

Sales P 100, 000 Collection from Customers P 100,000

Less: Cost 150, 000 Payment of Expenses 50, 000

Profit (P 50, 000) Net Cash Flow P50, 000

COMPANY C

Income Statement Cash Flow

Sales P 100, 000 Collection from Customers P 100,000

Less: Cost 70, 000 Payment of Expenses 70, 000

Profit P 30, 000 Net Cash Flow P30, 000

Suppose the above given Income Statements and Cash Flow Statementsof companies A, B and C were
presented to you. Which do you think is a more attractive company? Justify your answer. (5PTS)

Profitable and having a good cash flow is Company C. The best option appears to be Company C based on the
information presented.

II. The following are different factors that may affect the price of stocks. Give your opinion on how each of
them may cause to increase or decrease the stock prices of a company. (3 PTS EACH)

A. Profitability of business operations

A company's profitability is determined by how much money it makes compared to how much it spends. More
effective businesses will make more money relative to their costs than less effective businesses, which must
spend more to make the same amount of money.

B. Competent management

The majority of important stakeholders recognize and agree that competency management is not an exact
science but also recognize that information pertaining to such categorization can be very beneficial to the
organization. The rationale for establishing competency management must be stated in some depth, as must
the application procedure, intended results, and key stakeholders' expectations.
 C. Political Instability

Because the stock market considers uncertainty to be a risk, politics can also have an effect. For example, if
there is uncertainty, stocks that are likely to be impacted by current and upcoming political decisions may
trade sideways.

D. Having health crisis like pandemic

It is helpful to keep in mind that the discounted value of all future dividends added together determines the
stock market's worth. As a result, the decline appears to be the result of investors revising their projection of
future profits lower by as much as 30%. However, rather than adjustments in anticipated future growth rates,
the majority of the variance in the stock market's value is caused by changes in projected returns, which are
used to discount future cash flows.

II. Assume that you are the biggest shareholder of a corporation. Give three objectives that you want to
achieve as owner of the corporation (2 PTS EACH OBJECTIVE)

• Maximization of corporate value. Businesses need to sell products and services to make money and make a
profit. Profitability and revenue growth work together to increase the corporation's worth.

• Satisfaction of Employee and Customer. Customer satisfaction is crucial to generating new business,
recommendations, testimonials for marketing purposes, and sales case studies. Employee satisfaction is also
similar. Both result in increased costs, which reduce profitability and thus reduce a company's shareholder
value.

• Increase of Shareholder’s wealth. It's comparable to raising the company's value. The goal of generating
shareholder wealth may take into account the impact of taxes in addition to improving the business's revenues
and profitability margins. By making that value accessible to shareholders at a lower tax rate, a company that
has considerable value growth can improve shareholder wealth.

III. Answer the following questions.

1. What defines a shareholder’s wealth? (2PTS)

The present value of anticipated future returns to the company's owners, or shareholders, is known as
shareholder wealth. These returns may come in the form of regular dividend payments or stock sale revenues.

2. What do you think is the most crucial role of a financial manager? Why do you think so? (2PTS)

Making financial decisions and maintaining control over the organization's money are essential responsibilities
of financial managers. Techniques like ratio analysis, financial forecasting, profit and loss analysis, etc. are
employed by them.

3. Given that you have excess funds, where will you invest the funds? Will you opt to buy stocks (an equity-
based financial instrument) or corporate bonds (a debt-based financial instrument)? Explain your answer.
(3PTS)

I will opt to buy stocks. The fact that there is no requirement to repay the money obtained through equity
financing is its main benefit. Naturally, a business's owners want it to succeed and give equity investors a
favorable return on their investment, but without having to make payments or pay interest, as with debt
financing.

4. Explain how the following financial institutions can help individuals or firms. (2PTS EACH)
A. Commercial banks

They also aid in the market's development of capital and liquidity. By taking the money that their clients
deposit in their accounts and lending it to other people, they maintain liquidity.

B. Investment Bank

Offering guidance to governments and businesses on how to address their financial issues is the main objective
of an investment bank. Finance, research, trading, sales, wealth management, asset management, IPOs,
mergers, securitized products, hedging, and other services are provided by investment banks to their clients.

C. Investment Company

An investment company employs skilled and experienced finance managers who are capable of making astute
financial selections as an average investor. The investor can easily access a variety of investment options
without having to put out the effort of investigation and planning. As investing in a single asset class can be
highly dangerous, the firm also aids investors in diversifying their portfolios.

D. Brokerage Firms

Brokerage firms exist to assist their clients in matching two sides for a trade by bringing buyers and sellers
together at the most advantageous price for each party, all while collecting a commission for their services.
Full-service brokerages provide extra services like research and advise on a variety of financial products.