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Finance Final Study Guide

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FIN 3715
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Finance Final Study Guide13 1 QuestionThe goal of financial management is to maximize the current value per share of the existing stock14 1 QuestionAgency Problem The possibility of conflict of interest between the stockholders and management of a firmEx Hiring an agent to sell your car based of a flat fee theyre more inclined to make a sell than get you the best price Offering incentives such as commission can work to make agents and the principals you goals alignAgency Costs the cost of the conflict of interest between stockholders and managementManagement will frequently have two good reasons to increase share value thus acting in interest of stockholders1Managerial Compensation is usually tied to financial performance in general2Job Prospects Better performers within the firm tend to be promoted managers who are successful in pursuing stockholder goals will be in greater demand and thus command higher salariesStakeholders someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firmEx Employees customers suppliers and the government51 1 QuestionFuture Value FV the amount an investment is worth after one or more periodstFVPV1rrrate tperiods PVpresent valueSimple Interest interest earned each period on original principal onlyCompound Interestinterest is earned each period on original principal and any interest earned in previous periods62 3 QuestionsAnnuity a level stream of cash flows for a fixed period of time11PVFAnnuityPVCtCcash flow per period PVFr1rUsing your financial calculator PMT is your cash flow per periodAnnuity Due an annuity for which the cash flows occur at the beginning of the periodAnnuity Due Value Ordinary Annuity Value1rPerpetuityConsol an annuity in which the cash flows continue forever
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