Any ideas on the following from chapter 6? a) In section 1 the notes introduce three finanical roles: + Financial Manager - Stands between financial markets and firms operations + Treasurer - Responisble for financing decision + Chief Financial officer - responsible for budgeting decisions How to these people typically work together? Is the Financial Manger ultimately in charge of all financial decisions (ignoring the board of directors) but delegates the day-to-day decisions to the treasurer and CFO? Or is there some other hierachy? b) Opportuinty cost of capital - notes say that this is the "rate of return offered by equivalent investment alternatives". This sounds quite wooly - how is it calculated in practice? c) The introduction says that the chapter meets the syllabus objective "(v) Discuss the relationship betwen financial management and entrepreneurialism". Which part of the chapter addresses this?? Cheers!
I'm fairly certain that the CFO is the head honcho. I think it even says so in the notes. I'll check my notes tonight to see if I can answer your other queries.
The Board is ultimately and collectively responsible for all aspects of the management and operation of a company. In a large company, there will often be an executive director with particular responsibility for each aspect of the company's operation, eg its finances. This person could be referred to as the Financial Manager, the Financial Director and/or the Chief Financial Officer (CFO). The Core Reading here uses the first and last of these terms interchangeably. The Treasurer is then the person with the more specific role of actually raising and managing the cash required. In a large company, they will be subordinate to the CFO. In a small company, they may the same person as the CFO. In practice, there are a number of different ways of estimating the opportunity cost of capital. As investing in one particular project means that the money used cannot be invested in another similar one, the opportunity cost can indeed be defined as the rate of return foregone from that other similar project. Theory suggests that we might use WACC (weighted average cost of capital) calculations, along the lines discussed in the capital projects chapters in CT2 and CA1 (or 108 and 301) to determine the appropriate risk discount rate for a project. In practice, however, many businesses apparently just make an inspired guess regarding the appropriate discount rate for a project based on informed judgement (just as most decisions in life are based on judgement, rather than being made on a rigorous scientific basis!) As far as I can see, syllabus objective (v) isn't really covered by any of the material in this chapter (or any of the other chapters in the course.)
Cheers guys, that makes things a lot clearer. It's never helpful when the course has syllabus objectives not addressed in the notes and uses interchagable terms without saying so!
