Chapter 1.2 Framework for maximising SH wealth

Question 1

Important decisions

Answer 1

1. Investment decision
2. Financing decision
3. Dividend decision
4. Risk management

Question 2

Investment decision

Answer 2

Analyses proposed investment
- beneficial to investor/SH?
- maximise SH wealth?

Question 3

Financing decision

Answer 3

• How much debt a company should use?
• Aim: minimise the cost of capital

Question 4

Dividend decision

Answer 4

• How much to pay SH
• How much to retain in the company
• Interrelationship between key decisions

Question 5

Risk management

Answer 5

• Risk needs to be considered when making all 3 decisions