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Finance & Accounting
Pages 8 (2008 words)
Financial Accounting [Instructor Name] Q1: (i) Components of Financial Strategy Two components of financial strategy are 1. The funds required by organizations and most appropriate methods for raising these funds. This involves evaluation of the funding requirements of the business and then approaching different venues for raising capital that is either through borrowing or issuing equity in the capital markets and collecting funds from shareholders’ investment in the company’s shares (Bender & Ward, 2012)…
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Decisions that can be prescribed in financial terms are covered in the financial strategy (Bender & Ward, 2012). Thus, it could be stated that the financial decisions are different from business decisions that the company may undertake however, they are related to each other and have implications for them. (iii) There are four reasons that market value might differ from fundamental value which are given below: a. The share price often reflect future prospect of the company’s performance (Bender & Ward, 2012). If the market expects that the financial results of a company will exceed the expected growth rates than the share price will react positively in advance (Bender & Ward, 2012). This is usually reflected by high price to earnings ratio. It is understood that companies’ stock which have higher price to earnings ratio are likely to show increase in the market value of their shares as the market develops an expectation that these companies are likely to outperform their expected targets. For example, a recent launch of iPhone 5 pushed the market value of Apple’s stocks higher. b. ...
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