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15 Cards in this Set
- Front
- Back
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how is the dollar value of a stockholder's wealth obtained?
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by multiplying current stock price per share by the number of common shares owned
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Why is stockholder wealth maximization more important than profit maximization?
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timing, risk, divident payment, and qualitative factors
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timing
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investors prefer to recieve income asap
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risk
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investors may be adverse to risk
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dividend payment
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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
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qualitative factors
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current stock mkt value reflect quality aspects of future activities
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functions of financial mgmt
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financial planning & control, efficient allocation of funds, & acquisition of funds
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principles of finance
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risk-return tradeoff, time value of money, leverage, liquidity vs profitability, matching principle, portfolio effect, and valuation
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risk-return tradeoff
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the higher the risk of a project, the higher the expected return from the project
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time value of money
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a dollar today is worth more bc it can be invested & worth more in the future then a dollar later
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leverage
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small percent increase in sales leads to a large increase in earnings bc costs are fixed
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liquidity vs profitability
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higher liquidity strenthens the firm's ability to pay bills but reduces profitability resulting in a trade off btw the 2 goals
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matching principle
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short term assets should be financed w/ short term liabilities & long term assets should be financed w/ long term sources of funds
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portfolio effect (diversification)
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as more assets are added to the portfolio, the risk of the total portfolio decreases
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valuation
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the economic value of an asset is equal to the present value of its expected cash flows
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