1.

Overview of Financial Management

1- 8 Is it better for a firm's actual stock price in the market to be under, over, or
equal to its intrinsic value? Would your answer be the same from the
standpoints of both stockholders in general and a CEO who is about to
exercise a million dollars in options and then retire? Explain.

Explain :
I think it's better if the actual stock price the same as an intrinsic value for actual
stock price shares tend to move up and down in line with estimates of intrinsic
value. Stock Price actualis relatively easy to know, because it is announced in
public every day. However, intrinsic value is based entirely on estimates and
analyzes that are different from the data.
And different views of the future will result in different estimates of intrinsic value
for a particular stock. Of course to analyze the estimated intrinsic value is the
essence of stock analysis, and something that a successful investor has
mastered. Investing will be easy, profitable, and can minimize risk. if we know
the intrinsic value of the stock. The intrinsic value increases because the
company retains and reinvested its PROFIT which tends to increase profits.
The market stock price is the value of a stock based on "estimated" information,
but has the possibility of being wrong as seen by marginal investors.
The intrinsic value of the shares is an estimate of the “true” share value based
on accurate risk and return data. Intrinsic value can be estimated, but cannot
be measured accurately. What is meant by 'actually' is the return and risk that
most investors would expect if they had all of the information available about
the company. Intrinsic value is a long-term concept. It reflects both the wrong
action and the right action. The goal of company management should be to
carry out activities designed to maximize the company's intrinsic value, not its
current market price. However, it should also be noted that maximizing intrinsic
value will maximize the average price in the long run and not always the current
stock price.
Stock market equilibrium is a situation where the actual stock price is equal to
the intrinsic value, so that investors are indifferent between buying or selling
shares.
For example, the management of a company will make an investment that will
reduce profits in the current year, but increase future PROFIT substantially.
If investors do not know the true situation, the share price may be held back by
low current earnings even though the actual intrinsic value is rising.
Therefore, company management should provide information that will help
investors make an accurate estimate of the company's 'true' intrinsic value.
1-11 Should stockholder wealth maximization be thought of as a long-term or a
short-term goal—for example, if one action would probably increase the
firm’s stock price from a current level of $20 to $25 in 6 months and then
to $30 in 5 years but another action would probably keep the stock at $20
for several years but then increase it to $40 in 5 years, which action would
be better? Can you think of some specific corporate actions that might
have these general tendencies?

Explain:
• Shareholders, including long-term investment, are the investment of a
portion of the assets of a company in another company with the intention of
obtaining fixed income and / or controlling or controlling the company.
Investments in the form of shares represent the purchase / ownership of
other companies with the aim of obtaining income in the form of dividends.
Another advantage can be in the form of Control Management: namely the
right to determine the policy on the company being purchased. Control
management is obtained if share ownership reaches a majority. A company
that makes an investment in shares is called a Parent Company, while a
company that issues shares is called a Subsidiary Company, the relationship
between the two is usually called a parent subsidiary affilation.
• Maximizing profit is a logical goal for every company, all corporate finance
experts agree that the company's goal from a financial management
perspective is not to maximize profits, but to maximize shareholder wealth or
maximize company value. shareholder wealth is the multiplication of the
share price per share and the number of shares outstanding. This means
that the shareholder's wealth will be reflected in the value of the company,
which is shown by the share price of the company concerned on the stock
exchange. Thus, maximization of shareholder wealth or company value
(share price) has exactly the same meaning. The formulation of the
maximization of shareholder wealth or company value as an objective will
ultimately facilitate the measurement of a company's performance. If the
stock price of a company has an increasing trend in the long run, it is an
indicator that the company's performance is in good condition. The increase
in stock prices reflects market confidence in the company's prospects in the
future.
• Profit maximization is not the right goal. There are two reasons that are easy
to understand why the company's goal from a financial management
perspective is maximization of shareholder wealth or firm value, not profit
maximization:
 a. Profits do not represent cash flow. Profit that is presented in the income
statement is not a quantity that shows cash flow, so if a company's profit
is Rp. 10 billion, that in no way means that there is a cash flow of the
same amount. In financial management, the decision making is based on
cash flow. This means that financial decisions are considered correct,
which decisions will increase the net cash flow received by the company
in the future.
b. Profits do not consider time and risk. For example, companies A and B
will generate profits in the next two years. A's profit was $5 million in the
first year and $5 million in the second year, while B's profit was Rp 0 in
the first year and Rp $10 million in the second year, the average annual
profit of the two companies was clearly the same, namely $5 million.
Which company to choose? Based on the profit maximization approach,
we will be independent of the two companies. However, if we use the firm
value maximization approach, we will choose company A over company
B because the firm value approach considers time and risk factors, not
size alone. When the $10 million received from company B occurred in
the second year (even though we prefer to receive it in the first year than
in the second year). In addition, company B has a different profit each
year, which indicates that company B contains higher uncertainty or risk
than company A. The normative objective of the company is to maximize
firm value. What is meant by company value is the price a prospective
buyer is willing to pay if the company is sold. The higher the company
value, the greater the prosperity the company owner will receive.

2. Financial Markets & Institutions

2-1 What are the differences between indirect transfers through investment
banks, and those through a financial intermediary?

Explain :
• Differences between indirect transfers through investment banks. For
example, a certain company underwriters these emissions.The underwriter
acts as an intermediary and facilitates securities issuance.The company sells
its shares or bonds to investment banks, then sells the same securities to
savers.Company securities and depositors' money only passes through
investment banks.However, investment banks do buy and hold securities for
a certain period of time, so the bank will take risks. The bank may not be able
to sell back to savers the same amount as the purchase price. Because this
transaction involves new securities and the company receives the proceeds
from the sale, this is called a primary market transaction.
 • Those through a financial intermediary such as a bank or mutual fund. Here,
the intermediary gets funds from savers in exchange for the intermediary
effect itself. An intermediary uses these funds to buy and store business
securities, for example, a saver deposits his funds in a bank, then receives
a certificate of deposit from the bank and the bank will lend the funds to the
small business as a mortgage loan. Thus, intermediaries literally create new
forms of capital. In this case, certificates of deposit are safer and more liquid
than mortgages
So that it is better for most savers to own. The existence of this intermediary
greatly improves the efficiency of the money market and capital market.
Often the entity that needs capital is a company, and more specifically it is
limited liability company (PT). Meanwhile, parties requesting capital include
business people, home buyers, or small business entrepreneurs.
For example, if your uncle lends you money to help fund a new business
when you want to open a business, this is a direct transfer of funds, whereas
if you want to own a house. You can get funds through a financial
intermediary such as a commercial bank, for example with a mortgage or
mortgage.

2-4 Indicate wheter the following instruments are example of money market or
capital market securities.
a. U.S Treasury bills
b. U.S Treasury notes
c. Negotiable certificates of deposit
d. Credit card debt
e. State goverment bonds

Explain:
A. Money Market
Can also be interpreted as a place for buying and selling transactions. It can
take the form of money and other more abstract investment instruments.
Instruments traded on the money market are usually in the form of securities:
a. US Treasury bills
b. US Treasury notes
c. Negotiable certificates of deposit
d. credit card debt
Money marketalso used as a source of working capital and investment
financing. However, it is still short term.
The presence of the money market can be a bridge of desire from foreign
investors or investors. To minimize the hassles in managing various investment
 documents, investors can use the money market as a way to channel their
short-term loans to companies in Indonesia.
From the instruments traded on the money market, here are some examples of
transactions:
• The inter-bank money market, which is a transaction to transfer an amount
of excess funds from one bank to another bank. The banks that received
the funds were losing clearing *. * Losing clearing means that a bank is
short of funds to pay its customers.
• Bank Indonesia Certificates (SBI), which are a type of securities issued only
by the Indonesian central bank and intended to be purchased by
commercial banks at a very large nominal value. BI's aim to issue SBIs is
usually to reduce the circulation of money in society.
• Money Market Securities (SBPU), namely securities issued by commercial
banks and purchased by Bank Indonesia with a large enough nominal. The
goal is to increase commercial bank liquidity and reduce inflation.
• Certificate of Deposit, namely securities issued by a bank in a certain
nominal value.
• The Foreign Exchange Market, which is a place for buying and selling
foreign currencies or exchanging them for rupiah currency. The foreign
exchange market is often called the foreign exchange market. The
institution is often known as the money changer.

B. Capital Market Securities.

The capital market (capital market) is a market for a variety of long-term
financial instruments that can be traded, both debt securities (bonds), equities
(stocks), mutual funds, derivative instruments and other instruments. The
capital market is a means of funding for companies and other institutions (such
as the government), and as a means for investing activities. Thus, the capital
market facilitates various facilities and infrastructure for buying and selling
activities and other related activities.
Financial instruments traded on the capital market are long-term instruments
(with a term of more than 1 year) such as stocks, bonds, warrants, rights, mutual
funds, and various derivative instruments such as options, futures, and others.
Bonds are basically debt securities. So, not only individuals or companies can
make debt securities - which are made after they borrow a number of funds as
business capital - the state can also make debt securities, which are then traded
as capital market instruments.