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Chapter 4

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Department
Finance
Course
FIN 300
Professor
Michael Inglis
Semester
Winter

Description
Chapter 4 Long Term Financial Planning and Corporate Growth41 What is Financial Planning Way financial goals are achieved what to be done in future Growth as Financial Management Goal Growth by itself is not an appropriate goal for financial managerRapid growth isnt always good for a fimrprices rise costs sold below costAppropriate goal is increasing the mkt val of the owners equitygrowth usually resultsConsequence of good decision making Growth as growth in mkt val of equity in the firm then goals of growth and increasing the mkt val of equity not diff Dimensions of Financial Planning 1 Planning horizonlong range time period the financial planning process focuses on usually the next 25 yrs 2 Aggregationsmaller investment proposals of each of a firms operational units are added up and treated as one big project3 Inputs in form of alt sets of assumptions a A worse casepessimistic assumptions of companys products and state of ecn Emphasize divisions ability to wstand significant ecn adversitycost cutting divestiture liquidation b A normal casemost likely assumptions of comp and ecn c A best caseoptimistic assumptionsnew product expansioncyclical businessbus with sales that are strongly affected by overall state of the ecnWhat Can Planning Accomplishbasis for financial planExamining Interactions o wherefinancing obtained to pay for activityexpansionExploring Options o develop analyze and compare diff scenarios in consistent wayo impact on firms SH o firms future lines of bus o financing optionsAvoiding Surprises o assumptions made today about futureo contingency plansEnsuring Feasibility ad Internal Consistency o financial planningway to check goals plans regarding firms operations are feasible and internally consistent o est priorities Communication with Investors and Lenders o good mgmt controls riskiness of firm equity investors and lenders o limited resources for planning pressure from lenders is often the main motivator for engaging in financial planning42 Financial Planning Models A First Look A Financial Planning Model The Ingredients
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