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Financial Management Assignment 2

The document discusses appropriate goals for a not-for-profit hospital, which could include minimizing costs to provide services affordably and ensuring the organization remains financially sustainable. It also discusses aligning CEO compensation with long-term stock performance over intrinsic value growth rather than short-term profits or stock price on a single date. Maximizing shareholder wealth is framed as a long-term goal achieved through decisions that enable sustained earnings growth rather than short-term gains. Actions are evaluated based on their impacts on long-term stock price versus short-term changes.

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Kenneth Mallari
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269 views

Financial Management Assignment 2

The document discusses appropriate goals for a not-for-profit hospital, which could include minimizing costs to provide services affordably and ensuring the organization remains financially sustainable. It also discusses aligning CEO compensation with long-term stock performance over intrinsic value growth rather than short-term profits or stock price on a single date. Maximizing shareholder wealth is framed as a long-term goal achieved through decisions that enable sustained earnings growth rather than short-term gains. Actions are evaluated based on their impacts on long-term stock price versus short-term changes.

Uploaded by

Kenneth Mallari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Kenneth Mallari

BSA2- A

Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital). What
kinds of goals do you think would be appropriate?

Such associations as often as possible seek after social or political missions, so various objectives are
possible. One objective that is frequently referred to is income minimization; i.e., give whatever
merchandise and ventures are offered at the most reduced conceivable expense to society. A superior
methodology may be to see that even a not-revenue driven business has value. Along these lines, one
answer is that the suitable objective is to augment the estimation of the value. Evaluate the following
statement: Managers should not focus on the current stock value because doing so will lead to an
overemphasis on short-term profits at the expense of long-term profits.

If a company's board of directors wants management to maximize shareholders' wealth, should the
CEO's compensation be set as a fixed amount, or should the compensation depend on how well the
firm performs? If it is to be based on performance, how should performance be measured? Would it
be easier to measure performance by the growth rate in reported profits or the growth rate in the
stock's intrinsic value? Which would be the better performance measure? Why?

The top managerial staff should set President pay subject to how well the firm performs. The pay
bundle ought to be adequate to pull in and hold the President yet not go past what is required.
Remuneration ought to be organized with the goal that the President is compensated based on the
stock’s exhibition as time goes on, not the stock’s cost on a choice exercise date. This implies choices (or
direct stock honors) ought to be staged in over various years so the Chief will have an impetus to keep
the stock value high after some time. On the off chance that the inherent worth could be estimated in a
target and obvious way, at that point execution pay could be founded on changes in natural worth. Be
that as it may, it is simpler to gauge the development rate in announced benefits than the natural
worth, albeit revealed benefits can be controlled through forceful bookkeeping strategies and inborn
worth can’t be controlled. Since characteristic worth isn’t detectable, remuneration must be founded on
the financial exchange’s value—but the value utilized ought to be a normal after some time as opposed
to on a particular date.

Should stockholder wealth maximization be thought of as a long-term or short-term goal? For


example, if one action increases a firm's stock price from a current level of P 1,000 to P2,000 in 6
months and then to P3,000 in 5 years but another action keeps the stock at PI 000 for several years
but then increases it to P4,000 in 5 years, which action would be better? Think of some specific
corporate actions that have these general tendencies.

Investor riches augmentation is a since quite a while ago run objective. Organizations, and thusly
thestockholders, succeed by the board settling on choices that will deliver long-term earnings
increments. Activities that are constantly limited regularly "get up to speed" with a firm and, therefore,
it might get itself unfit to contend adequately against its competitors. There has been a lot of analysis as
of late that U.S. firms are too short-run benefit situated. A great representation is the U.S. car industry,
which has been charged of continuing to assemble huge "gas guzzler" cars since they had higher profit
margins as opposed to retooling for littler, more eco-friendly models.

What are some actions that stockholders can take to ensure that management's and stockholders'
interests are aligned?

Valuable inspirational apparatuses that will help in adjusting investors' and management’s interests
include: (1) sensible remuneration bundles, (2) direct mediation by shareholders, including terminating
chiefs who don't perform well, and (3) the danger of takeover

The president of Southern Tagalog Corporation (STC) made this statement in the company's annual
report: "STC's primary goal is to increase the value of our common stockholder's equity". Later s in the
report, the following announcements were made:

The company contributed PI .5 million to the symphony orchestra.

Company is spending P500 million to open n new plant and expand operations. No profits will be
produced by the operation for 4 years. so earnings will be depressed during this period versus what
they would have been had the decision been made not to expand.

The company holds About half of its assets in the form of government treasury bonde and it keeps
these funds available for use in emergencies. In the future, though. STC plans to shift its emergency
funds from treasury bonds to common stocks,

Discuss how SVC's stockholders might view each of these actions and how the actions might affect the
stock price.

Corporate magnanimity is consistently a clingy issue, however it very well may be legitimized
regarding assisting with making a more appealing network that will make it simpler to recruit a gainful
work power. This corporate altruism could be gotten by investors adversely, particularly those investors
not living in its base camp city. Investors are keen on activities that amplify share cost, and if contending
firms are not making comparable commitments, the "cost" of this generosity must be borne by
somebody - the investors. In this manner, stock cost could diminish.
b. Organizations must cause interests in the current time frame so as to produce future incomes.
Investors ought to know about this, and expecting a right examination has been performed, they ought
to respond decidedly to the choice.

7. Miguel Enterprises recently made a large investment to upgrade its technology. While these
improvements won't have much effect on performance in the short run, they are expected to reduce
future costs significantly.' What effect will this investment have on Miguel Enterprises' earnings per
share this year? What effect might this investment have on the company's intrinsic value and stock
price?

Since firm has as of late contributed enormous funding to update their innovation, procuring per
portion of the firm will go down. The motivation behind why firms gaining per share go down is that the
firm has less cash (as costs goes up, benefit diminishes because of capital speculation) to appropriate
profits to the investors.

The natural estimation of firm may increment because of positive future impression of speculator
towards firm that organizations future income will increment because of the adjustment in innovation.
Since financial specialists have positive discernment towards firm , the interest of stock goes up
subsequently characteristic worth and stock cost go up.

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