Financial managers should only accept transactions that are expected to increase the firm’s stock price

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Expert Solution

Financial management deals with the maintenance and creation of economic value or wealth. The primary motive of the financial manager is to ensure the economic wealth. So the value creation is very important and the firm should achieve high value then only the share price of the firm will increase. There is a wrong thinking is that Each financial decision made by a corporate manager can be evaluated by its direct impact on the corporation's stock price. Actually it is wrong. This can be considered as the answer to the question that the financial manager should only accept transaction that are expected to increase firms stock. The financial managers doing many other things and not only this. Some times they need to maximise the value of the firm according to the market condition. So at that time their primary motive may not be to increase the stock price. The goal of financial management is to maximize the current value per share of the existing stock. The aim of maximizing the value of the stock avoids the problems associated with the different objectives . Keeping share pricing constant is also a motive of the financial manager. So they will accept transactions other than increasing stock price also.

ThankYou........

jeff jeffy answered 1 year ago

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