Because the company is likely to spend a lot of time preparing proposals on different scenarios that will become the basis for the company’s financial plan, it seems reasonable to ask what the planning process will accomplish:
a) Interactions. The financial plan must make explicit the linkages between investment proposals for the different operating activities of the firm and the financing choices available to the firm.
b) Options. The financial plan provides the opportunity for the firm to work through various investment and financing options. The firm addresses questions of what financing arrangements are optimal, and evaluates options of closing plants or marketing new products.
c) Feasibility. The different plans must fit into the overall corporate objective of maximizing shareholder wealth.
d) Avoiding surprises. Financial planning should identify what may happen in the future if certain events take place. Thus, one of the purposes of financial planning is to avoid surprises.
