Question

1. Choose 2 questions and write 1 to 2 paragraphs on each one.
   1. The main goal for a corporation is to maximize value for the shareholders. Briefly explain the purpose of regulation and the concept of ethics.  Is it possible for a company to maximize shareholder value and be ethical?
   2. Investors find the value of any asset by determining future cash flows and discount them by the required rate of return.  Required return has three components.  Identify the three components and briefly explain why time value of money concepts are integral in all areas of finance and financial management.
   3. Explain the components of DuPont Analysis and how a manager would correct a low ROE ratio by identifying steps he/she could undertake to improve this ratio.

Answer 1

Answer a. The main objective of an corporation is the maximisation of it's shareholders wealth because they are the owners of the organisation.They invest money in the company only with the objective of getting their weath Increased.Regulation means the rules which at based upon to carry out the specific set of tasks in compilation of legislation and ethics is the application of appropriate policy and procedures for the acheivement of the organisational obejective.Ethics governed the way company should operate by complying appropriate regulation in true and fair manner.

Yes it is possible to maximize shareholders value and be ethical as both are related to each other.If corporation operate in the ethical way and performing well it will automatically boost shareholders wealth.

Answer b. There are different ways for calculation of required rate of return however the most common way include three major components i.e Risk free rate,Beta to measure risk and risk premium.Risk free rate indicate the minimum return on investment and beta and market premium shows extra return based on risk taken by the investor.

Discounting of future cash flows at required rate of return shows the present value of return that investor would get in future.Time value of money shows the value of money we will get back on investment date by discounting with expected return.It shows the comparison between the amount of investment and it's worth in terms of return.It reflects the how much amount of money that will be created in the future because of this it is very much important in the financing and financial management decisions.