EBK FOUNDATIONS OF FINANCE
EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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Chapter 1, Problem 1RQ

What are some of the problems involved in implementing the goal of maximization of shareholder wealth?

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Summary Introduction

To discuss: The problems involved in implementing the goal of maximization of shareholder wealth.

Explanation of Solution

The problems involved in implementing the goal of maximization of shareholder wealth are as follows:

One such problem is maximization of the market value of the company's common stock. Numerous things influence the price of stock, so distinguishing which changes in the price of stock is because of the decisions made by the management and which changes are because of outside factors, for example, the state of the economy might be troublesome.

There may likewise be vulnerability about the inevitable financial pay-off of certain business investments. The investors and managers may have distinctive time horizons and diverse risk inclinations, which can influence their firm valuation. Moreover, managers may not generally act to the greatest advantage of investors, an exemplary instance of an agency issue.

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Agreee or disagree with post The temporary value of money (TVM) is an important concept in finance. TVM states that the money available now is worth more than the same amount in the future. This is because money can earn interest over time. A key assumption of this model is that money will obtain consistent performance. This assumption helps people make decisions about savings, investment and spending. For example, knowing that money grows can motivate people to save for future objectives. However, this model has limitations. The assumption of consistent yields may not be true in real life due to changes in the market or economic conditions. Therefore, although the temporal value of money is useful for planning, it is essential to consider the risks and uncertainties in financial decision making. Agree or disagree with post
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