Roles managers play - ANS-- strategic management: develop objectives and formulate
strategy to achieve objectives
- operation management: day to day
... [Show More] control over various business functions
- risk management: identify and properly manage risks faced by a business
finance functions - ANS-- financial planning: evaluate viability of proposed course
through making projected financial statements
- investment project appraisal: assessing profitability and riskiness of projects
- financing decisions: identify and assess diff sources of finance
- capital market operation: related to issues concerning pricing of loan or valuation of
share price
- financial control: monitoring plans put into action
primary objective of firm - ANS-value maximisation/ shareholder's wealth maximisation
wealth can come in two forms - ANS-through dividend and price appreciation
is profit maximisation same as value maximisation? - ANS-no. The primary objective of
a business is shareholder wealth maximization within a market economy shareholders
provide funds to a business in the expectation that they will receive the maximum
possible increase in wealth for the level of risk that must be face the term wealth . in this
context is referred to the market value of the ordinary share the market value will intern
reflect the future returns the shareholders will expect to receive overtime
profit maximisation has:
- lack of precision: op profit, profit before tax, profit after tax, profit available to
shareholders ordinary share
- lack of objectivity: example, accounting for depreciation, inventory, bad debts
- time period: arbitrary reporting period choice
- risk is ignored in profit calculation: shareholder can make risky decisions
- opportunity cost is ignored
stakeholder approach - ANS-firms work to meet the environmental demands of multiple
stakeholders—employees, suppliers, and the community.
problems with stakeholder approach - ANS-- lack of a simple, clear cut objectives for
managers to pursue
- multiple objectives can be conflicting
- is stakeholder approach at the expense of shareholder wealth maximisation?
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