Question

Review the topic presented below. In 3-4 paragraphs, respond to each prompted question. You should utilize, and cite from, 2-3 primary resources that are no older than 5 years.

In finance theory, what is the most widely accepted goal of the firm? (If you currently work in an entity, you can relate the questions to such.) How does the net present value of a project relate to this goal? Discuss the relationships between the firm’s goal, financial management and capital budgeting.

Answer 1

Creation of wealth and maximizing the wealth is one of the top priorities of any company. It adheres to value delivery to each stakeholders. I am working with an export company which try to generate maximum profit by delivering high quality products. This will increase its wealth in the long run.

NPV helps in assessing the investment opportunities of an organization in the marketplace. A positive NPV helps in reducing the chances of failure of projects. A better cashback will be helpful in creating wealth for the shareholders.

In brief, The goals of an organization will decide which types of financial management applications will be appropriate. Choosing a particular capital budgeting techniques like Payback, IRR , NPV etc. depends upon a firm's ability and risk taking ability. A conservative company will choose Payback or accounting rate of return whereas as aggressive firms will use Internal rate of return as its capital budgeting method. Financial management helps an organization to fullfill its invest decisions, financial decisions and dividend decisions . Hence,  capital budgeting and goals must be aligned to these specific or braoder goals.