MAF203 Study Guide - Final Guide: Preferred Stock, International Financial Reporting Standards, Capital Structure
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Applying the formula for future value of annuity: (cid:1832)(cid:1848)(cid:3041)=(cid:1829)(cid:1832) [(cid:4666)(cid:883)+(cid:4667)(cid:3041) (cid:883) 1. 5 marks for correct answer: the deposit is the present value of ,000. Although profit maximisation appears to be the logical goal for any company, it has many drawbacks. First, profit can be defined and measured in a number of different ways because of difference in accounting rules (gaap (generally accepted accounting. Principles) vs ifrs (international financial reporting standards)). (0. 5 mark) Second, accounting profits do not exactly equal cash flows. (0. 5 mark) Third, profit maximisation does not account for timing of cash flows and ignores risk associated with cash flows. (1 mark) Therefore, the appropriate goal for financial managers which does not have these limitations is to maximize the wealth of the shareholders (through maximising the value of the co(cid:373)pa(cid:374)y"s curre(cid:374)t share price). (1 mark) In order to achieve this goal, management must make appropriate financial decisions so that the total value of the firm will be maximised.
