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41-110 (21)
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Lecture

maximizing profit

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Department
Economics
Course
41-110
Professor
Habetler
Semester
Fall

Description
f an important financial objective of a business is to maximise the value of the business, how can this be achieved? The answer lies in the different approaches to valuing a business. There are two broad approaches to valuing a business: (1) Break-up Basis: this method of valuing a business is only of interest when the business is threatened with liquidation, or when management are considering selling off individual assets to raise cash; (2) Market Value Basis: The market value of a business is the price at which buyers and sellers will trade shareholdings in a company. This method of valuation is most relevant to the financial objectives of a business. When shares are traded on a recognised stock market, such as the Stock Exchange, the market value of a business can be measured by the share price. When shares are held in a private company, and are not traded on any stock market, there is no easy way to measure value. It becomes a subjective judgement on behalf of both the buyer and seller about factors such as: • Future profits and cash flows that the buyer can expect t
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