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15 Cards in this Set

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how is the dollar value of a stockholder's wealth obtained?
by multiplying current stock price per share by the number of common shares owned
Why is stockholder wealth maximization more important than profit maximization?
timing, risk, divident payment, and qualitative factors
timing
investors prefer to recieve income asap
risk
investors may be adverse to risk
dividend payment
profit would be retained & reinvested to boost profits, if dividends aren't paid stockholders will sell which would depress stock price, payment of dividends attracts investors and increases stock value
qualitative factors
current stock mkt value reflect quality aspects of future activities
functions of financial mgmt
financial planning & control, efficient allocation of funds, & acquisition of funds
principles of finance
risk-return tradeoff, time value of money, leverage, liquidity vs profitability, matching principle, portfolio effect, and valuation
risk-return tradeoff
the higher the risk of a project, the higher the expected return from the project
time value of money
a dollar today is worth more bc it can be invested & worth more in the future then a dollar later
leverage
small percent increase in sales leads to a large increase in earnings bc costs are fixed
liquidity vs profitability
higher liquidity strenthens the firm's ability to pay bills but reduces profitability resulting in a trade off btw the 2 goals
matching principle
short term assets should be financed w/ short term liabilities & long term assets should be financed w/ long term sources of funds
portfolio effect (diversification)
as more assets are added to the portfolio, the risk of the total portfolio decreases
valuation
the economic value of an asset is equal to the present value of its expected cash flows