Goals And Governance Of The Corporation Flashcards
1
Q
What is the financial goal of firms
A
Maximise the wealth of the shareholders
Maximise profits ?
Maximise sales ?
Efficient market hypothesis- the stock price reflects instantly all available information regarding the firm
Maximise the value of the firm
2
Q
How can a firm maximise its value (investment decision )
A
Invest in assets that earn a return higher than the minimum acceptable hurdle rate
Invest in REAL assets (tangible or intangible)
The minimum acceptable hurdle rate is known as (opportunity) cost of capital
3
Q
Maximising value (financing decision)
A
Finance investments by finding the right kind of debt for the firm and decide on the capital structure to fund operations
