Financial Principals and Policies Essay

880 Words Sep 12th, 2015 4 Pages
Xin Zheng
xinzheng@callutheran.edu
Chapter 1
2. What are the differences between shareholder wealth maximization and profit maximization? If a firm chooses to pursue the objective of shareholder wealth maximization, does this preclude the use of profit maximization decision-making rules? Explain.
Profit maximization means the company makes profit maximize. Maximize shareholder wealth states that management needs to bring maximize the value for its owners by make the most efficient resources and reasonable financial management. Therefore, shareholder wealth maximization include the profit-maximization model, it considers not only profit maximization model, but also the timing of return and the risk of the company. The most important the
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Because of the recession and the need to generate current income, you plan to sell the coin and invest in Treasury bills. The Treasury bill yield now stands at 8 percent, although it was 7 percent one year ago. A coin dealer has offered to pay you $12,800 for the coin. Compute the holding period return on this investment.
12,800*8%=1024
(12,800-14,000+1024)/14,000=-1.3%
The holding period return on this investment is a negative return of 1.3%.

9. The stock of Tips, Inc., a new firm operating a chain of sports betting parlors, has just been sold in an initial public offering at a price of $25 per share. One week after this offering, the stock has risen in value to $35. You believe the stock will rise to $45 over the coming year. You do not expect Tips to pay any dividends over the year. If you require a rate of return on this stock of 18 percent, do you believe this is a good investment at the current price of $35?
The holding period return= (45-35/35)*100%=28.57%
This is a good investment due to the expected return of 28.57%.

13. Over the past 10 years, your $15,000 in gold coins has increased in value by 200 percent. You plan to sell these coins today. You have paid annual storage and insurance costs of $500 per year. Assay expenses at the time of sale are expected to total $400. What is your 10-year (not annualized) holding period return on this investment?
15,000*(1+2) =45,000
HPR=…

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