Corporate Finance: Dividends and Strategy

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Questions and Answers

What is financial management primarily concerned with?

  • Minimizing costs
  • Optimizing investment opportunities
  • Maximizing profits
  • Managing the finances of an organization to achieve its financial objectives (correct)

What is the primary goal of financing decisions in financial management?

  • Estimating future cash flows from each investment opportunity
  • Identifying the best investment opportunities
  • Determining the optimal mix of capital components (correct)
  • Paying out dividends to shareholders

What is the primary purpose of a corporate strategy?

  • To specify a course of action to achieve a specific objective (correct)
  • To increase market share
  • To maximize profits in the short term
  • To improve customer satisfaction

Which of the following is a non-financial objective of a firm?

<p>Customer satisfaction (D)</p> Signup and view all the answers

What is a critical issue in the dividend decision function of financial management?

<p>Determining how much dividend per share to pay to shareholders (C)</p> Signup and view all the answers

What is the purpose of investment decisions in financial management?

<p>To identify the appropriate investment opportunities and estimate future benefits (C)</p> Signup and view all the answers

What is the primary difference between profit maximization and shareholder wealth maximization?

<p>Measure of financial performance (A)</p> Signup and view all the answers

What is the primary function of a finance manager in the context of financial management?

<p>To perform all functions of financial management, including financing, investment, and dividend decisions (C)</p> Signup and view all the answers

What is the primary purpose of paying dividends?

<p>To distribute profits to shareholders (B)</p> Signup and view all the answers

Which of the following is a financial objective of a firm?

<p>Return on capital employed (C)</p> Signup and view all the answers

What is the ultimate goal of financial management in an organization?

<p>To achieve the financial objectives of the organization (A)</p> Signup and view all the answers

What is the primary benefit of a corporate strategy?

<p>Achievement of specific objectives (B)</p> Signup and view all the answers

What is a key assumption of the profit maximization objective?

<p>The firm operates at full capacity in a competitive market (A)</p> Signup and view all the answers

What is the formula for total shareholder return?

<p>(P1-P0+D1)/P0 (C)</p> Signup and view all the answers

What is a limitation of the profit maximization objective?

<p>It ignores the time value of money (A)</p> Signup and view all the answers

What is the purpose of the earnings per share (EPS) growth objective?

<p>To compare the performance of a company over a number of years (D)</p> Signup and view all the answers

What is shareholder wealth maximization?

<p>The number of shares held by shareholders multiplied by the share price of the company (D)</p> Signup and view all the answers

What is the advantage of shareholder wealth maximization objective?

<p>It considers the welfare of all stakeholders and the time value of money (D)</p> Signup and view all the answers

Flashcards

Financial Management's Primary Concern

Managing an organization's finances to reach its financial goals.

Goal of Financing Decisions

Finding the best mix of funding sources (like loans and shares) for the company.

Corporate Strategy's Purpose

A plan to reach a specific organizational goal.

Non-Financial Objective

Goals that are not directly related to making money.

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Dividend Decision Function

Deciding how much profit to share with shareholders.

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Purpose of Investment Decisions

Finding profitable projects and estimating their future gains.

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Profit Maximization vs. Shareholder Wealth

Measure of financial success; maximizing current profit vs. maximizing long-term value for investors.

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Finance Manager's Function

Managing all aspects of company finances, including funding, investing, and dividend payouts.

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Purpose of Paying Dividends

Distributing profits to shareholders as a reward for investing.

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Financial Objective

A goal related to making money or managing finances.

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Ultimate Goal of Financial Management

To achieve the company's financial objectives.

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Primary Benefit of Corporate Strategy

Reaching the organization's specific objectives.

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Assumption of Profit Maximization

The company is operating at full capacity in a competitive market.

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Total Shareholder Return (TSR)

The total gain to shareholders, combining capital appreciation and dividends.

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Profit Maximization Limitation

It ignores the value of money over time.

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Earnings Per Share (EPS) Growth Objective

Tracking the growth of earnings for each share, comparing performance over time.

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Shareholder Wealth Maximization

The total value of shares owned by investors, reflecting the company's market value.

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Shareholder Wealth Maximization Advantage

It considers the interests of all stakeholders and the time value of money.

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