Card Set Information
Shareholder wealth is represented by...
the market price of a firm's common stock.
The value today of some future payment, evaluated at an appropriate discount rate.
The discount rate takes into account...
the returns that are available from alternative investment opportunities.
The longer it takes to receive a benefit, the... the value that benefit is.
The greater the risk of the benefit, the... the value that benefit is.
Stock prices reflect what 3 things associated with future benefits? (MTR)
The price at which the stock trades in the market place.
Formula for shareholder wealth.
Number of shares outstanding x Market price per share
3 advantages of shareholder wealth maximization. (CYI)
1. Considers timing and risk of future benefits
2. You can determine if a decision is consistent with it.
3. It's an impersonal objective.
The key performance metric in financial management.
Shareholder wealth maximization
Someone who is interested in the performance of a company for reasons other than just stock appreciation.
The primary reason for the divergence between the shareholder wealth maximization goal and the actual goals pursued by management is...
separation of ownership and control (management).
When one or more individuals (principals) hire another individual (the agent) to perform a service on behalf of the principle.
2 of the most important agency relationships.
Inefficiencies that arise because of agency relationships.
Costs incurred by shareholders to minimize agency problems.
A business owned by one person.
In a sole proprietorship, the owner of the firm has... for all debts incurred.
unlimited personal liability
A business organization in which 2 or more co-owners form a business.
A partnership where each partner has unlimited liability for all of the debts incurred.
Limited partnerships are common in what type of ventures?
A "legal person" composed of one or more actual individuals or legal entities, separate from both.
Money contributed to start a corporation.
4 advantages that corporations have over sole proprietorships and partnerships. (LPFA)
1. Limited liability
4. Ability to raise capital
In most corporations, who elects the board of directors?
Owners of a corporation are issued...
Investors who lend money to corporations are issued...
Equity securities take the form of... or...
common stock, preferred stock.
The CFO distributes financial management responsibilities between the... and the...
3 reasons profit maximization isn't the central decision making model for shareholder wealth maximization. (LDP)
1. It lacks a time dimension (doesn't compare long-term and short-term profits)
2. The definition of profit
3. Provides no direct way for financial managers to consider the risk associated with alternative decisions.
3 factors that determine the market value of a company's shares of stock. (ATR)
1. Amount of cash flows it is expected to produce
2. Timing of the cash flows
3. Risk of the cash flows
The greater the risk associated with an expected cash flow, the greater...
the required rate of return.
The 5 competitive forces that can influence an industry. (TTBBR)
1. Threat of new entrants
2. Threat of substitute products
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Rivalry among competitors
2 things financial mangers are responsible for. (MC)
1. Measuring value
2. Creating value
Claims of... are taken care of after everyone else has been dealt with.
Who are considered to be the "true owners" of a corporation?