Ch. 1: the Roel and Objective of Financial Management

Question 1

define shareholder wealth

Question 2

how is shareholder wealth measured?

Question 3

what are the differences between wealth maximization and profit maximization?

Question 4

If a firm chooses to pursue the objective of shareholder wealth maximization, does this preclude the use of profit maximization decision-making rules? Explain.

Question 5

Which type of corporation is more likely to be a shareholder wealth maximizer—one with wide ownership and no owners directly involved in the firm’s management, or one that is closely held?

Question 6

Is the shareholder wealth maximization goal a short- or long-term goal? Explain your answer.

Question 7

It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is “expected” to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not inconsistent with shareholder wealth maximization.

Question 8

Explain why management may tend to pursue goals other than shareholder wealth maximization.

Question 9

Give some examples of agency costs incurred by shareholders in the agency relationship between the shareholders (owners) and management of a firm.

Question 10

Explain the differences in the responsibilities of the treasurer and the controller in a large corporation.

Question 11

Explain the relationship between financial management and microeconomics.

Question 12

Explain the relationship between financial management and macroeconomics.

Question 13

12

Question 14

13