18 Questions
What does profit maximisation emphasise?
Short-term accounting profit
Which of the following is a key difference between profit maximisation and wealth maximisation?
Profit maximisation invests in research for long-term development, while wealth maximisation minimises business costs.
What does wealth maximisation consider regarding risk compared to profit maximisation?
Wealth maximisation considers the risk of return and its effect on business value.
Which investment strategy is associated with wealth maximisation?
High-risk, high-return investments
What aspect does profit maximisation ignore compared to wealth maximisation?
Timing of return
Why do shareholders buy a company's shares according to the text?
To enhance shareholder wealth over time
What is the key difference between Profit Maximisation and Wealth Maximisation?
Profit Maximisation ignores the cost of capital, while Wealth Maximisation considers it.
Which element is crucial for increasing wealth according to the text?
Managing positive cash flow
What does Profit not equate to, as mentioned in the text?
Cash flow
Why is considering the cost of capital important for Wealth Maximisation?
To obtain funds to generate more money
How does Wealth Maximisation view the timing of return compared to Profit Maximisation?
Wealth Maximisation seeks long-term value creation, unlike Profit Maximisation.
What is the significance of positive cash flow in increasing wealth?
It helps to manage debts and expenses
What principle emphasizes reinvesting cash flows to increase greater cash inflows?
Buy assets that add value; avoid buying assets that do not
Why would a risk-averse investor demand for shares less, leading to a reduction in share price?
To avoid taking risks in investments
Which financial principle suggests that markets efficiently deal with information?
Markets are efficient and deal well with information
Why is the value of money today considered more than the value of money tomorrow according to the text?
Timing in financial decisions matters
Which principle focuses on the importance of adding value through asset selection?
Buy assets that add value; avoid buying assets that do not
What does 'Cash is king' principle emphasize about the value of an asset?
It is based on the cash flows produced over its life
Understand the concept of wealth maximisation and how it differs from profit maximisation. Learn about the importance of increasing the market value of a company's common stock over time and how it benefits shareholders.
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