2) Explain why a profit maximizing firm produces the output that equates marginal revenues to marginal costs (MR=MC). In a perfectly competitive market‚ producers are price-takers and consumers are price-takers. There are many producers‚ none having a large market share and the industry produces a standardized product‚ also free entry and exit of the industry. They produce using the optimal output rule: produce where marginal revenue equals marginal cost as Smith (1904) demonstrated. Figure
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Wealth Maximization & Functions of Finance – Financial Management Assignment of MB0029 MBA assignments of Financial Management for MB0029: Offer your arguments in favor of wealth maximization of one of the goals of financial Management and Functions of Finance. Wealth Maximization: Wealth maximization has been accepted by the finance managers‚ because it overcomes the limitations of profit maximization. Wealth maximization means maximizing the net wealth of the company’s share holders
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INTRODUCTION TO FINANCIAL STRATEGIES OF A COMPANY It is important for a business to have a clear financial strategy. This is true for both new companies and those with a long history. The strategy constitutes your company ’s guiding principles in all its financial decisions. Different scenarios demand varying strategies for the business. Of course the strategy must be re-evaluated whenever the business undergoes changes in its financial circumstances. Factors involved When you plan your
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might be engaged upon‚ recognising the ultimate needs of industry in setting those standards‚ and responsibility to society in enforcing them. As a result‚ the financial sustainability of professional institutes is crucial in order to ensure continued professionalism and integrity within any economy. Identifying strategies for financial sustainability have long been considered an important goal of organisational policy required for organisational sustainability‚ with a substantial body of research
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primary measure of success or failure of a firm in the market. Profit earning capacity indicates the position‚ performance and status of a firm in the market. In spite of several changes and development of several alternative objectives‚ profit maximization has remained as one of the single most important objectives of the firm even today. Both small and large firms consistently make an attempt to maximize their profit by adopting novel techniques in business. Specific efforts have been made to maximize
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Rights of Shareholders. Introduction: A shareholder is an individual or company that legally owns one or more shares of stock in that company. Shareholders are the owners of companies. A small business may have just one shareholder‚ the founder‚ while a public company may have thousands of individual and institutional shareholders‚ such as mutual fund companies‚ pension funds and hedge funds. Shareholders play an important role in the financing‚ operations‚ governance and
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person becomes a shareholder and owner of the corporation. Shareholder and corporations are liable. THE LIMITED LIABILITY OF SHAREHOLDER One of the key advantages of the corporate forms is the limited liability of its owners. Corporate shareholders normally are not personally liable for the obligations of the corporation beyond the extent of their investments. CORPORATE TAXATION Corporate profits are taxed‚ and do not receives tax deduction for dividends distributed to shareholders. Profits that
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Revenue and sales maximization Revenue maximization Maximizing sales revenue is an alternative to profit maximization and occurs when the marginal revenue‚ MR‚ from selling an extra unit is zero. The notion that business firms (especially those operating in the real world) are primarily motivated by the desire to achieve the greatest possible level of sales‚ rather than profit maximization. On a day-to-day basis‚ most real world firms probably do try to maximize sales rather than profit. For firms
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Financial Theories and Strategies Paper FIN 554 February 15‚ 2005 Introduction Financial theories are the building blocks of today ’s corporate world. "The basic building blocks of finance theory lay the foundation for many modern tools used in areas such asset pricing and investment. Many of these theoretical concepts such as general equilibrium analysis‚ information economics and theory of contracts are firmly rooted in classical Microeconomics" (Oaktree‚ 2005) This paper will define
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One of the most widely used concepts in finance is that shareholders require a risk premium over bond yields to bear the additional risks of equity investments. While models such as the two-parameter capital asset pricing model (CAPM) or arbitrage pricing theory offer explicit methods for varying risk premia across securities‚ the models are invariably linked to some underlying market (or factor-specific) risk premium. Unfortunately‚ the theortical models provide limited practical advice on establishing
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