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Case Study Business

In:

Submitted By tas1990
Words 645
Pages 3
To: Mr. V.Morrison, CEO, Caledonia Products

From: Julien Thizeau-Amir-Sadri, Applicant for the position of Financial Analyst

Date: May 31, 2012

Subject: A test of my understanding of basic financial concepts and tax code

The appropriate goal for the firm is the maximization of shareholders' wealth (maximization of the market value of common stock) because it includes the effects of all financial decisions. Indeed, with poor investment or dividend decisions will cause a fall in the total value of the firm's stock and on the other hand, good decisions will push the price of the stock upward. In this way all financial decisions are evaluated, and all financial decisions affect shareholder wealth.

Investors will not invest if they do not expect to receive a return on their investment. They will want a return that satisfies two requirements:
- A return for delaying consumption (investors will want to receive at least the same return that is available for risk-free investments, such as the rate of return being earned on U.S. government securities).
- An additional return for taking on risk (risky investments are less attractive, unless they offer the prospect of higher returns)
(Principles 2 and 3: Money has a Time Value and Risk requires a reward)

Returns are expected not promised.

We focus on cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest. The cash flow method considers the timing of cash inflows and outflows and discounts those flows according to the time of occurrence. Whereas, accounting profits ignore the time value of money. As per the accounting profit, profit is generated once you sell the goods and not when you realize payment for it
(Principle 1 : Cash Flow is what matters)

An efficient market is one where the prices of the assets traded in that

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