Goals And Governance Of The Corporation Flashcards Preview

Business Finance > Goals And Governance Of The Corporation > Flashcards

Flashcards in Goals And Governance Of The Corporation Deck (3):
1

What is the financial goal of firms

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

How can a firm maximise its value (investment decision )

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

Maximising value (financing decision)

Finance investments by finding the right kind of debt for the firm and decide on the capital structure to fund operations