Question

1. First define the goal of financial management, then discuss WHY this goal is more important than any other....

2. Define the agency problem and discuss how to resolve it from the perspective of a stockholder.

Minimum 500 words please

Intext citations and reference please

Reference

Corporate Finance A Focused Approach, 6th ed.

Ehrhardt and Brigham Cengage Learning. 2017

ISBN - 9781305637108

Answer 1

Ans 1. The goal of financial management is creating profit for the business and ensuring an acceptable return on investment (ROI).

The reasons for why the above mentioned goals are more important than any other goals are as below:

1.Selecting profitable assets and such projects which are effective and result in growth and profitability of the business and increasing shareholder's wealth.

2.These goals decide the best sources of funds and a stable mixture portfolio of capital for an entity.

3.These goals are directly associated with the welfare of the capital contributors of the company which eventually hits the financial statements of the company.

4.These goals also define the overall objective of any business.

5.Find, measure, and mitigate uncertainty in investment decisions.

6.Ensure sufficient liquidity to cover operating expenses without going for any external resources.

Ans 2. The agency problems occur when a person hired to take in charge and responsibility of some other's assets having authority to act in full confidence on the behalf of the principal, but instead of acting effectively and efficiently he starts misusing it for his own benefit.

From a stockholder who invests a lot of hard earned money and delegate the authority to act effectively but that agent starts using it for own profit earning creates a trouble for the stockholder.

This type of problems though can not be totally eliminated yet the risk can be minimised by setting up the terms and conditions binding both principal and the agent.The Fiduciary Rule is an example of an attempt to regulate the arising agency problem.In addition, performance feedback and independent evaluations hold the agent accountable for their decisions.