Final answer:
Financial managers ask key questions when setting long-term financing objectives to align with the company's mission and determine the optimal capital structure. Shareholders vote on company managers, and banks act as intermediaries facilitating funding. Choices of raising capital for expansion, such as loans or stock issuance, involve trade-offs and are influenced by various factors.
Step-by-step explanation:
Understanding Long-Term Financial Objectives
When setting long-term financing objectives, financial managers often consider several key questions that can significantly influence a company’s financial strategy. Some of these questions include evaluating the company's mission to ensure alignment with financial planning, determining the optimal capital structure components that balance debt and equity to minimize cost of capital, and strategizing on how to manage short-term debts effectively. While not directly related to long-term objectives, minimizing daily expenses can also contribute to a stronger financial position, which in turn supports long-term financing strategies.
Shareholder's Role and Financial Intermediaries
Shareholders typically choose company managers by voting at annual general meetings, which is an exercise of their rights as part-owners of the company. Banks are referred to as “financial intermediaries” because they facilitate the flow of funds from savers to borrowers, supporting both individual financial goals and overall economic growth.
Choosing Between Borrowing and Issuing Stock for Expansion
For a small established firm looking to expand, the choice between borrowing (e.g., a loan or bond issuance) and issuing stock involves trade-offs. Borrowing does not dilute ownership but includes the obligation to repay with interest, whereas issuing stock dilutes current ownership but does not require repayment. The decision would be based on factors such as cost of capital, control considerations, and the firm's current financial position.
Financial Decisions and Investment Evaluation
Individuals make financial decisions for spending and saving by setting clear goals and creating a plan that takes into account their future needs. The importance of banks and financial institutions is underscored by their role in providing access to capital and financial services. When evaluating risk and return for investments, individuals must consider their personal risk tolerance and the investment's potential to meet their financial goals. The use of credit has its pros and cons, including the opportunity for financial leverage but also the risk of overindebtedness.