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What is meant by maximizing owner’s equity value (shareholder wealth)? Why are maximizing just net income,...

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Finance

  1. What is meant by maximizing owner’s equity value (shareholderwealth)? Why are maximizing just net income, or just profit,inappropriate goals?   (10 points)
  2. Why do financial managers and investors find cash flows to bemore important than accounting profit? (10 points)
  3. What information does time series analysis provide for firmmanagers, analysts, and investors? (10 points)
  4. Define the following ratios and explain their significance. (30points)
    1. Quick ratio
    2. Average collection period
    3. Return on equity
    4. Debt ratio
    5. Profit margin

Answer & Explanation Solved by verified expert
3.7 Ratings (698 Votes)
Shareholders Wealth is the Intrinsic Value or Market Value of a share of the company Its the present value of the expected future earnings whether they are in the form of dividends or the price that the sale of shares would fetch in the market A good economic growth strategy involves maximization of the shareholders wealth and not just the net profit The reasons are Companys wealth can be maximized if the companys cash outflows and inflows are planned keeping in view the risk associated with the timing Since shareholders wealth maximization takes into account these factors like timing and risk its a better measure of companys performance It is a means of attracting more and more finance from the investors as they    See Answer
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Transcribed Image Text

What is meant by maximizing owner’s equity value (shareholderwealth)? Why are maximizing just net income, or just profit,inappropriate goals?   (10 points)Why do financial managers and investors find cash flows to bemore important than accounting profit? (10 points)What information does time series analysis provide for firmmanagers, analysts, and investors? (10 points)Define the following ratios and explain their significance. (30points)Quick ratioAverage collection periodReturn on equityDebt ratioProfit margin

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