Questions on financial and investment management

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Questions on financial and investment management

Assumptions of Modigliani — Miller Theory: Capital markets are perfect. All information is freely available and there is no transaction cost. All investors are rational.

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No existence of corporate taxes. What Is Optimum Capital Structure? Optimum capital structure deals with the issue of right mix of debt and equity in the long-term capital structure of a firm. According to this, if a company takes on debt, the value of the firm increases up to a certain point.

Beyond that value of the firm will start to decrease. If the company is unable to pay the debt within the specified period then it will affect the goodwill of the company in the market. Therefore, company should select its appropriate capital structure with due consideration of all factors.

The corporate income taxes do not exist. The market capitalizes the value of the firm as whole. Thus the split between debt and equity is not important. The increase in proportion of debt in capital structure leads to change in risk perception of the shareholders.

The overall cost of capital Ko remains constant for all degrees of debt equity mix. The term trading on equity means debts are contracted and loans are raised mainly on the basis of equity capital. Since fixed charges do not vary with firms earnings before interest and tax, a magnified effect is produced on earning per share.

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Whether the leverage is favorable, in the sense, increase in earnings per share more proportionately to the increased earnings before interest and tax, depends on the profitability of investment proposal.

If the rate of returns on investment exceeds their explicit cost, financial leverage is said to be positive. Business Risk and Financial Risk: It is an unavoidable risk because of the environment in which the firm has to operate and the business risk is represented by the variability of earnings before interest and tax EBIT.

The variability in turn is influenced by revenues and expenses. Companies that issue more debt instruments would have higher financial risk than companies financed mostly by equity. Ploughing back of Profits: Long-term funds may also be provided by accumulating the profits of the company and by ploughing them back into business.

Questions on financial and investment management

Such funds belong to the ordinary shareholders and increase the net worth of the company. A public limited company must plough back a reasonable amount of its profits each year keeping in view the legal requirements in this regard and its own expansion plans.

Such funds also entail almost no risk. Further, control of present owners is also not diluted by retaining profits. Features of Deep Discount Bonds: Deep discount bonds are a form of zero-interest bonds.

These bonds are sold at discounted value and on maturity; face value is paid to the investors.In all cases, SCS is the trusted advisor responsible for all aspects of a client’s financial life, integrating sophisticated investment portfolios across multiple asset classes and geographies, with a customized financial strategy, inclusive of estate and income tax strategy.

Boston Financial Management provides wealth management and investment advisory services for individuals, families, endowments, and non profits.

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We continue to provide solutions to our clients' most important financial questions. A good financial professional will welcome your questions, no matter how basic. Financial professionals know that an educated client is an asset, not a liability.

They would rather answer your questions before you . The Advisory Firm,LLC is a fee only financial planner CFP,CFA located in Alpharetta, Georgia. Planning,Investment,Tax,Retirement Specialist.

Atlanta Fee Only Wealth Management. The following financial management web quizzes are grouped to correspond with the chapter headings in Fundamentals of Financial Management, 13th ed., Pearson Education Limited () by James Van Horne and John Wachowicz.

Sep 17,  · Investment Management vs. Asset Management The terms investment management and asset management are interchangeable. They refer to the same practice, the professional management of assets through investment.

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