Question

Goals of the Firm. Fill in the blanks in the following passage by choosing the most appropriate term from the following list (some of the terms may be used more than once or not used at all): expected return, financial assets, lower, market value, higher, opportunity cost of capital, real assets, dividend, shareholders.

Shareholders want managers to maximize the ____ of their investments. The firm faces a trade-off. Either it can invest its cash in ____ or it can give the cash back to ____ in the form of a ____ and they can invest it in ____ . Shareholders want the company to invest in ____ only if the ____ is ____ than they could earn for themselves. The return that shareholders could earn for themselves is therefore the ____ for the firm.

Answer 1

Market value; real assets; shareholders; dividend; financial assets; real assets; expected return; higher; opportunity cost of capital.

Step-by-step explanation:

Shareholders want managers to maximize the market value of their investments. The firm faces a trade-off. Either it can invest its cash in real assets or it can give the cash back to shareholders in the form of a dividend and they can invest it in financial assets. Shareholders want the company to invest in real assets only if the expected return is higher than they could earn for themselves. The return that shareholders could earn for themselves is therefore the opportunity cost of capital for the firm.

A shareholder can be defined as an individual or organization who has a stock in a particular company through the purchase of such stocks.

Generally, all shareholders are interested in making profits and increasing the market value of their investments.