Finance assignment
The goal of the firm is to maximize the current market value. The idea of maximizing the market value is associated with the concept of generating higher shareholder value. The market value is the price at which an asset would trade in a competitive auction environment, for instance, giving back value to the stockholders should they decide to sell shares or if the company decides to sell.
Adding a cost-of-living adjustment to the pensions of retired workers of the company would increase the expenditure of the firm since it will incur a cost on people who do not contribute to the firm’s profitability. An increase in the expense of the firm on non-profitable undertakings like this is not consistent with the firm’s goal of maximizing current stock value.
If the company decides to reduce its dividend payment and instead decides to reinvest more earnings in the business can affect the firm in two different ways. It is believed that a low dividend payout ratio reduces the cost of capital and increases the stock price, thereby contributing to maximizing the company’s value. However, the reduction in dividend payout may demoralize some investors. On the other hand, high dividends lower the cost of capital and increase the share value since it can appeal to long-term value investors who can help drive up the share price after some time. Purchasing a corporate jet for the firm’s executives would help in enhancing operational efficiency, ensuring safety and privacy, along with helping the company save on high costs hence assist the company in achieving its goal of maximizing current market value.
Drilling for oil is a new revenue stream that is meant to offer the firm a competitive advantage over its competitors. Securing a competitive advantage is one factor that can help the company attain the goal of maximizing the current market share. However, being that the firm’s probability of getting oil is very low, this undertaking might not really have a positive impact on the company’s revenues; thus, this action may not be consistent with the firm’s goal of maximizing the current market share.