Question

① In a large corporation, what are the two distinct group that report to the chief financial officer?

　Which group is the focus of corporate finance?

② What goal should always motivate a actions of a firm’s financial manager?

③ Who owns a corporation?

　Describe the process whereby the owners control the firm’s management.

　What is the main reason that an agency relationship exists in the corporate form of organization?

　In this context, what kinds of problems can arise?

④ You are probably noticed coverage in the financial of an initial public offering(IPO) of a company’s securities.

　　Is an IPO a primary market transaction or a secondary market transaction?

Answer 1

Answer (1)- In a large corporation, two groups report to the Chief financial officer-

Treasurer's office- This department takes care of Cash and credit management, capital budgeting and financial planning decisions so this department directly report to CFO.

Controller's office- This department is responsible for Cost and financial management and taxation so it directly reports to CFO. Treasury groupmis the focus of Corporate finance.

Answer (2)- Main Goals- The primary goal of a financial manager is to maximize the profit and reduce the cost. It should also include Wealth maximization to shareholders. Financial manager should focus on increasing overall value of the firm.

Answer (3)- In a corporation, common shareholders are the real owners of the company. They own the company and they have voting rights, they elect board of directors.

Agency relationship is between shareholders and company's management, due to this relationship, agency problem arises in which shareholders and management have conflicts, Shareholders want to maximize their wealth while management key people want to to increase their salaries and other monetary benefits.

Answer (4)- IPO- It is initial public offer through which a company raises funds from market by issuing shares. IPO is a primary market transaction. Before listing on the stock exchange, company has to come up with the IPO in primary market and once the company is listed on the exchange, it starts trading in the secondary market, i.e. stock market.