Financial Principals and Policies

Why is stock value maximization superior to profit maximization as a goal for management?

Stock value maximization is pretty significant to a company since it can be told about the company such as an reputation. Companies cannot exist by themselves. They do need a lot of money or

Profit maximisation is when firms maximise their profits through sales and increasing the price of products. Profit maximisation occurs when total sale revenue is furthest above total cost which is when MR= MC. Firms are usually controlled by the managers, in order for managers to keep its position its must gain enough or maximise the firms’ profits, so it can satisfy the shareholders. However managers may want to take a different approach rather than maximising the firms’ profits. Managers may want to maximise managerial objectives such as maximising its sales rather than profits. However although they are taking a different approach, they still must gain enough profits to satisfy the firms’ shareholders in order to avoid losing their

The primary objective of the manager is to please the stockholder by maximizing stockholder wealth.

year 2 is $23.64 or $33.64. In each case the market expects the firm to earn 10%

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

7. A company pays $600,000 for 30% of the common stock of X, Inc. In the first year, X,

information the result is a percentage rate that shows the profit margin. The formula to determine

In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value of all expected future ___________ discounted at the stockholders' required rate of return.

Using the rate of return above, what should be the current share price of Coca Cola Company if the company maintains a constant 3% growth rate in dividends and the most recent dividend per share paid on the stock was $2.00? Show your calculations. (10 pts)

- A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,200 and other assets of $10,800. Equity is worth $12,000. The firm has 750 shares of stock outstanding and net income of $775. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

The current year is 1979, so from Exhibit 3 the 1980 dividend is forecasted to be $1.70, and the stock price in 1979 is $22.50. This gives a dividend yield of 7.56%, which is added to g. There are four ways to solve for g:

Using this growth rate we calculated a terminal value of $6782.88 and a PV(terminal value) of $4698.39:

When we look at 75% occupancy, the rate of return (net earnings divided by amount invested) is $298,000/$3,525,000 = 8.4%. . This return should be regarded as low; as the

To maximize shareholder value through a systematic, disciplined, reliable, ethical, and ongoing process of supply of goods or services.

Nevertheless if companies operate in weak markets and fail to create growth and profit the concept of maximization of shareholder wealth is also an opportunity for self-regulation and security against threats for a company. This approach is in particular useful for safeguarding against difficulties arising from wrong or misguided leadership within a corporation. Shareholders of a company have the strongest interest in a company’s success because they often invest a lot of capital in the business and require revenues for their deposit (Moore, 2002). As a matter of fact, they become more