There are two members posts pertaining to this discussion could you come up with a thoughtful, well supported response for each member discussion. They only need to be about half of a page to one page in length for each one. And cite references in support agreements of or arguments. Expand upon the original point or provide an outside source that illustrates it. You can always disagree as well [as long as it is done in a respectful manner]. Provide a counterpoint or outside source to refute the original comment. Discussion question: What are the linkages among financial decisions, return, risk and stock value? Why are these linkages important? How does the financial manager incorporate these as s/he manages the assets and liabilities of the firm? Be sure to include examples to provide specificity for your answers. YOUR POST TO DISCUSSION: Linkages among financial decisions, return, risk and stock value: To get the best outcomes financial decision help companies using some tools and methods. A decision process may follow a hierarchy of authorities existing in the organization. They help in selecting out the appropriate alternatives exist. Financial decision making is a crucial task for any organization. Risks are the result of unfavorable conditions created in any organization when some investment is made. Risk and return are opposite to each other. On one hand risk is undesired, on another hand return cause to profit and is desired by each organization. These terms are related to each other as the goal of an organization is to increase the stock value for which financial decisions are taken incorporating risk or returns. In this manner we can deduce the linkages among those. Importance of these linkages: Linkages between these terms are important for a firm as they take place in single line of development. While calculating risk or return, the ultimate goal of the organization is to make financial decision to maximize value of its stock. To make effective financial decision it is the task of manager to find out the causes of risk and related return on investment. These are the basic terms in finance. There is no surety whether investing will return or not. Making financial decision must consider this variability. Financial manager incorporating these in managing assets and liabilities of the firm: Once the financial managers have an overview of linkages between financial decision, risk and return involved, they can better drill the financial outcomes of the organization. Asset related to a firm may be in form of cash or may be contract that will be generating cash values. Liabilities of any firm are the authority that is used to obligate a contract to deliver cash or to interchange the cash values between two or more partners. To create harmony in managing these two factors, financial decision making is a crucial step. With such high stakes, we've seen numerous directors get ready fancy budgetary models to support potential undertakings. Anyhow when it descends to an official choice, particularly when hard decisions need to be made among numerous open doors, they turn to less thorough means discretionarily reducing evaluations of expected returns, for instance, or applying excessively wide hazard premium. Example: The managers of Oil Company of North America were in preparation of new investment. They calculated the risk from transportation expenditure, daily creation and other used resource and found that these calculations fit best in accordance with the future assets value. They found it most optimistic having vision using financial decisions they will be creating. References: Brailsford, T. & Faff, R., 'A derivation of the CAPM for pedagogical use', Accounting and Finance, May 1993, pp. 53- 60. Ding, Z., Granger, C. W., & Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of empirical finance, 1(1), 83-106. Mandelker, G. N., & Rhee, S. G. (1984). The impact of the degrees of operating and financial leverage on systematic risk of common stock. Journal of Financial and Quantitative Analysis, 19(01), 45-57. http://www.mckinsey.com/insights/corporate_finance/making_ better_decisions_about_the_risks_of_capital_projects MEMBER #1's POST TO SAME DISCUSION: t.c Financial decisions have a profound impact on return, risk and stock value and all of these factors are connected in how they influence each other. In most cases risk is linked to return. The riskier a financial decision is in most cases signifies a chance of a larger return. An example of this relationship could be reflected in penny stocks. When investors chose to purchase stocks that are not publically listed and usually a start up company, there is risk involved because there is not much known of the company or product and the company could fail. On the other hand the company could do very well which would be reflected in their stock value, which would provide more of a return. On the opposite end of the spectrum of the relationship of risk and return are bonds which have a rate of return that will be met making them a much safer investment but they usually have less of a return then the return that could be achieved from taking moderate risks on publicly traded companies. Linkages of financial decisions, return, risk, and stock value are all important because their relationships are all part of investing whether it be for an individual or a firm. The relationship between all of these will make a firm profitable as well as increase the stock value for shareholders. The financial manager of a firm incorporates these as making decisions for the firm that don't necessarily have a high risk but offer a decent return for the decision made. For example if a financial manager wishes to take a loan to expand their production capabilities this would increase their liability by taking the loan but the ability to produce more of their product offers a high rate of return could increase their assets. Financial managers must take the return, risk and stock value into account with almost all of the decisions they make on a daily basis to ensure that the firm stays in good heath. References Gitman, L., & Zutter, C. (2015). Principles of Managerial Finance (Fourteenth ed.). Upper Saddle River: Pearson Education. MEMBER #2's POST TO SAME DISCUSION: D.s The risk, return on investments and their effect on the stock value, are important to financial managers as they are the basis for making financial decisions. The risk and rate of return aid in determining if an investment will be profitable, or worth the risk. Financial managers look for low risk investments that yield a high rate of return. It is a common misconception that higher risk means greater return on investment, but with higher risks comes the potential for bigger losses. Higher risks does not guarantee greater return on investment. The financial managers job is to determine a capital structure that maximizes profits for an organization by looking at its effect on the cash flow, liabilities and assets. When considering a potential investment the finance manager would incorporate the rate of return and risk on the organizations current capital structure to ensure profitability, thus calculating its effect on the stock value. An example of this would be whether to purchase or lease equipment. If the organization has limited capital then leasing may be the way to go, as purchasing would have a negative effect on the organizations capital structure. Some other factors to consider are the life span of the equipment, overall costs associated with leasing vs buying, costs of repairs, potential down-time and tax incentives. The ultimate goal of finance managers is to achieve profit maximization by making investment decisions that are expected to net the highest rate of return. These three - return, risk and stock value linked together are important tools in aiding in these decisions. Gitman, L., & Zutter, C. (2015). Principles of Managerial Finance (Fourteenth ed.). Upper Saddle River: Pearson Education