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Author Question: How does maximizing the long-run expected cash flows to the firm translate into maximizing ... (Read 53 times)

lak

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on: Jul 10, 2018
How does maximizing the long-run expected cash flows to the firm translate into maximizing shareholders' wealth?
 
  What will be an ideal response?

Question 2

The author claims that the goals of keeping customers happy, employees happy, and shareholders happy are not mutually exclusive, even though the first two goals identified may be costly and come at the expense of shareholders. How can this be?
 
  What will be an ideal response?


okolip

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: Shareholders invest in firms to realize a return. The returns from investing in a firm result from cash flows such as dividends or capital gains on the resale of shares of stock. Increasing the amount of money a shareholder can expect to receive increases the value of the shares of stock, thus increasing shareholders' wealth through a larger stream of cash flows and a larger expected capital gain.

Answer to Question 2

Answer: Simply put, the marginal benefits of providing a pleasing and productive work environment for qualified workers, keeping customers satisfied, and meeting customer expectations is greater than the marginal cost. The result of having unhappy workers and displeased customers could well cost the company in terms of shareholder value.


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