Which One of the Following Is a Criticism of Equating

question 59

Multiple Choice

Which one of the following is a criticism of equating the goals of maximizing the ROE of a firm and maximizing the firm's shareholder wealth?

• A) ROE is based on after-tax earnings, not cash flows.
• B) ROE does not consider risk.
• C) ROE ignores the size of the initial investment as well as future cash flows.
• D) All of the above are criticisms of ROE as a goal.

Learn the concept of incremental cash flows, including working capital adjustments and cannibalization effects.

Understand the impact of sunk costs and why they are excluded from capital budgeting analysis.

Recognize the significance of the Capital Cost Allowance (CCA) system and its effects on cash flows and tax liabilities.

Comprehend the various methods of risk assessment and their implications on capital budgeting decisions.

---

Definitions:

Brand Personality

A set of human characteristics associated with a brand name.

Human Characteristics

Traits or features that define humans, including biological, psychological, social, and cultural attributes.

Brand Equity

The added value a brand name gives to a product beyond the functional benefits provided.

Consumer-Brand Connection

The emotional and psychological relationship between a consumer and a brand, often influencing loyalty and purchase decisions.