Business Ethics and Profit Maximization

Questions and Answers

To evaluate whether the stocks and bonds are 'too high' or 'too low' or 'about right'

Human Resources Manager

Easy and inexpensive to form

Unlimited personal liability for the business' debts Signup and view all the answers

Limit stockholders' losses to the amount they invested in the firm Signup and view all the answers

Banking Signup and view all the answers

Partnership Signup and view all the answers

It is a legal entity created by the law Signup and view all the answers

Maximize the value of its stock Signup and view all the answers

Decisions relating to asset acquisition and capital raising Signup and view all the answers

To protect the environment and ensure fair employment practices Signup and view all the answers

The markets where interest rates, stock, and bond prices are determined Signup and view all the answers

Maximize the value of its stock Signup and view all the answers

The system that includes the circulation of money, granting of credit, and making of investments Signup and view all the answers

Dealing with the best way to structure a portfolio or 'basket' of stocks and bonds Signup and view all the answers

Finding the proper values of individual securities Signup and view all the answers

Study Notes

Adam Smith's insights led to the conclusion that profit maximization is the right goal for a business, and that the free enterprise system is best for society.
A modified version of Adam Smith's theory states that a firm's principal financial goal should be to maximize the wealth of its stockholders, which means maximizing the value of its stock.
Constraints are needed to prevent firms from polluting, engaging in unfair employment practices, or creating monopolies that exploit consumers.

Finance is the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.

Financial Management: focuses on decisions relating to acquiring assets, raising capital, and running the firm to maximize its value.
Capital Markets: relate to markets where interest rates, stock and bond prices are determined, and include financial institutions that supply capital to businesses.
Investments: relate to decisions concerning stocks and bonds, including security analysis, portfolio theory, and market analysis.

Key roles include the Board of Directors, Chief Executive Officer (CEO), Chief Operating Officer (COO), and Chief Financial Officer (CFO).

Proprietorship: an unincorporated business owned by one individual, with advantages including ease of formation, low government regulations, and lower income taxes.
Partnership: a legal arrangement between two or more people, with advantages including ease of establishment, pro rata allocation of income, and individual taxation.
Corporation: a legal entity separate from its owners and managers, with advantages including limited liability for stockholders, unlimited life, ease of transferring shares, and easier capital raising.