Management and Organizational Studies 2310A/B Chapter Notes - Chapter 1: Sole Proprietorship, Profit Maximization, Cash Flow

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Danny Morrison

Document Summary

The law of one price: in competitive markets the same goods must have the same price; financial securities that produce the same cash flows must have the same price. Valuation principle: the value of a commodity or an asset to the firm or its investors is determined by its competitive market price. Profit maximization is not a well defined corporate objectives: maximize which years profits (increase current profits but damage future years profits, increase future profits by cutting this year"s dividend, calculate profits in different ways. Factors affecting cash flow (and thus stockholder wealth maximization) Inflation, industrial demand, and other environmental factors beyond management control. Strategic and policy decisions controlled by management. Debt isnt a bad thing so long as you can pay it off. Agency: the duty to act in the best interest of the shareholders. The behaviour of mangers may not always be conducive to the health of the corporation. Managers are hired as agents of the owners.