FINANCIAL MANAGEMENT

Market Prices, Valuation Principle, Net Present Value, Interest Rates and Bonds

Market Prices, Valuation Principle, Net Present Value, Interest Rates and Bonds

Introduction

Financial managers deal with the value and costs related with the business enterprise. They focus on those areas of finance, which emphasize on the way large companies can create value and sustain a profitability by making efficient use of all resources that the company has to develop and prosper. Finance makes the decisions, which directly pertains to operating and financial operations, which take place every day. Starting from the primary objective of corporate finance, rather than as stated above is to maximize profit for shareholders or owners, one of the situational factors in order to carry out is without doubt the relevant measuring the contribution of a decision.

Explain why market prices are useful to a financial manager?

Market prices are the point where the forces of demand and supply meet. If the market price is going to increase, it would ultimately lowers down the supply and would create increased demand of the product. The financial managers analyze the feasibility of investment with the help of market prices (Khan, 1993). For instance, the market price of a stock is 10 and the predicted price by the financial managers to increase in the future then the managers would calculate the feasibility pertaining to the stock's profitability for the company. The buying and selling of goods at the same price takes place in a competitive market. There are a number of uses of market prices for financial managers. For instance, a financial manager can use market prices to find out the cash value of goods from the competitive markets. In addition, financial managers use the prices of such goods, trading in the market, to determine its value. However, it is essential for the financial managers to have the ability to determine the costs and benefits of goods. In this way, the financial managers can make effective decisions, which may be beneficial to the organization. Therefore, once a financial manager uses the market prices to determine the cost and benefits, he or she may be able to make effective decisions with respect to cash. As a result, a financial manager makes the best decisions for the organization. Eventually, the effective decision-making process brings additional profits and benefits to the company and the management. This is because the value of its benefits is more than its cost.

Discuss how the Valuation Principle helps a financial manager make decisions?

One of the primary and significant tasks of financial managers is to come up with effective and profitable decisions for the stakeholder. These stakeholder are primarily the shareholders and investors of the respective organizations. Moreover, financial managers, in their everyday lives, need to answer critical questions pertaining to investments, production, and profitability (O'Sullivan, 2003). There may be a number of ideas and proposals, which the management puts forward for the company. However, it is the task of the financial managers to determine the most profitable ...