c. Why should Caledonia focal point on undertaking free hard currency flows as opposed to the accounting net incomes earned by the undertaking when analysing whether to set about the undertaking?

Free hard currency flows are being focused on because it the sum that Caledonia will have and they will be able to reinvest that sum. Caledonia should analyse the free hard currency flow so that they are able to see the existent sum of value or what the cost may be. The fringy value from the undertaking would be in the incremental hard currency flow. The net incomes would be much less if they were looking at it through the accounting net incomes. It would be less because of the depreciation would be considered an disbursal doing a larger disbursal for Caledonia. Describe factors Caledonia must see if it were to rent versus purchase First Caledonia must calculate out if they will hold adequate hard currency flow to pay the measure each month. Renting would give Caledonia the benefit of diminishing costs. The down side of renting would intend that Caledonia will non be out of the rental until it has been paid away and the company who leased the belongings will be the proprietors until that is completed. Buying belongings means that the point is normally in better status. better value. and they will have it. Monetary values are frequently better when purchasing than with leasing. Tax disbursals may be a downside of having the belongings.

B. What does the risk-return tradeoff mean?

It is the rule that possible return rises with an addition in hazard. Low degrees of uncertainness ( low hazard ) are associated with low possible returns. whereas high degrees of uncertainness ( high hazard ) are associated with high possible returns. Harmonizing to the risk-return trade-off. invested money can render higher net incomes merely if it is capable to the possibility of being lost.

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a. What are the differences between the ends of net income maximization and maximization of stockholder wealth? Which end do you believe is more appropriate?

Net income maximization emphasizes the efficient usage of capital resources but it does non use to a specific clip frame where net incomes are to be measured. Firms have to larn to act rationally in order to increase their net incomes. However. it doesn’t use the real-world complexnesss that fiscal directors have to turn to in doing their determinations. Typically. this is the end of the house. On the other manus. maximization of stockholder wealth maximizes of the monetary value of the bing common stocks. This is entirely in the best involvement of the stockholders because it will supply the most benefit to society.


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