Which Three Statements Correctly Relate, According to the Finance Theory

question 16

Multiple Choice

Which three statements correctly relate, according to the finance theory view, to the maximisation of shareholder wealth?

• A) In an efficient market it is equivalent to maximising the share price.
• B) It can be ensured by maximising profit- based bonuses for senior management.
• C) It is equivalent to maximising the discounted cash flow to shareholders over a long time horizon.
• D) It is equivalent to maximising the purchasing power available from a shareholding in a firm.

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Definitions:

Stock Dividend

A disbursement by a company to its stockholders, consisting of extra shares instead of monetary funds.

Cash Dividend

A cash dividend refers to the distribution of profits by a corporation to its shareholders in the form of cash.

Stock Split

A corporate action in which a company divides its existing shares into multiple ones to boost the liquidity of the shares, though the company's market capitalization remains unchanged.

Average Investor

A term referring to a hypothetical investor who represents the median market participant, with typical financial goals and risk tolerance.