Final answer:
Firms aim to maximize their stock value for the best financial return to shareholders. They fund future profit-generating projects through investors, reinvestment, loans, or selling stock. Strategic management of fixed and variable costs is essential in long-term financial planning.
Step-by-step explanation:
According to finance theory, firms should attempt to maximize the long-term price of the firm's stock. The benefit to this objective is that it provides the best financial outcome for the firm's shareholders. Firms make decisions involving up-front expenditures with the expectation of future profits. They finance these decisions through four main avenues: (1) from early-stage investors; (2) by reinvesting profits; (3) by borrowing from banks or bonds; and (4) by selling stock. When selecting sources of financial capital, firms also determine the repayment methods for these funds. A critical part of this strategic financial management is understanding and managing the firm's cost structure, which involves distinguishing between fixed and variable costs, and how these relate to production decisions in the long-run.