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ch.1

### In the shareholder wealth maximization model, the value of a firm's stock is equal to the pv of all expected future ? disocunted at the stockholder's required rate of return

profits

### What defines the share-holder wealth maximization model?

the timing of future profits is explicity considered, the model provides a conceptual basis for evaluating differential levels of risk

### What is profit maximization of the firm?

process that companies undergo to determine the best output and price levels in order to maximize its return.

### What defines the managerial efficency theory of profit?

above normal profits arise because of high-quality managerial skill.

### what can be said to define turnaround of o.m. scott?

increase in interest rates to earn greater returns on its liquid assets

### what are the two problems which cause the principal-agent problem?

unobservability of manager-agent action and presence of random disturbances in team production.

### The level of an economic activity should be increased to the point where the __________ is zero.

net marginal benefit

### what does the net present value of an investment represent?

the expected contribution of a investment to the goal of shareholder wealth

### The standard deviation is appropriate to compare the risk between two investments only if

expected returns are approximately equal

### The _____ is the ratio of ________ to the ______

coefficient of variation; standard deviation; expected value