PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 1, Problem 7PS
Corporate goals* We can imagine the
- a. Make shareholders as wealthy as possible by investing in real assets.
- b. Modify the firm’s investment plan to help shareholders achieve a particular time pattern of consumption.
- c. Choose high- or low-risk assets to match shareholders’ risk preferences.
- d. Help balance shareholders’ checkbooks.
But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?
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We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might:
Make shareholders as wealthy as possible by investing in real assets.
Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption.
Choose high- or low-risk assets to match shareholders' risk preferences.
Help balance shareholders' checkbooks.
But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?
Tutorial Questions
Explain to John, your mentor, the primary goal of the organization?
Your manager is requesting you to provide an explanation to the question. Would the role of a financial manager be likely to increase or decrease in importance if the rate of inflation increased?
What is the difference between stock price maximization and profit maximization?
What are the three principal forms of business organization? What are the advantages and
disadvantages of each?
What mechanisms exist to influence managers to act in shareholders’ best interests?
What is an agency relationship?
What agency relationships exist within a corporation?
What are financial intermediaries, and what economic functions do they perform?
How does an efficient capital market help to reduce the prices of goods and services?
What is the term structure of interest rates? What is a yield curve? How should users and savers of…
Financial managers shouldconsider this when.improving thefinancials of the firm
A. that the overall goal is the maximization of the market value of the equity through improved income and cashflows.B. that cost minimization is the primary concern of the firm.C. that exposing the firm to the most risk for the most return should be priority.D. that the personal goals of customer and employees are above the goals of the shareholders.
Chapter 1 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 1.A - Prob. 1QCh. 1 - Investment and financing decisions Read the...Ch. 1 - Investment and financing decisions Which of the...Ch. 1 - Prob. 3PSCh. 1 - Prob. 4PSCh. 1 - Prob. 5PSCh. 1 - Opportunity cost of capital FH Corp. continues to...Ch. 1 - Corporate goals We can imagine the financial...Ch. 1 - Maximizing shareholder value Ms. Espinoza is...Ch. 1 - Prob. 9PS
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