Shareholder Wealth

2041 words 9 pages
`“Critically assess how finance managers can, in practice, contribute to the maximisation of shareholder wealth”.

This essay will examine how finance managers in day to day practice can participate in the aid of increasing maximum shareholder wealth. The focus point of this is based on the financial managers themselves, how they can manipulate and change things in order to increase shareholder wealth using certain tools and methods of analysis.

Shareholders are deemed as the owners of the business. Their main aim is to increase their wealth, finance managers are employed to achieve this aim. In order to maximise shareholder wealth it would mean “Maximising the flow of dividends to shareholders through time – there is a long term
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The only downfall to shareholders is when there are new projects being created it would have effects on the dividend payouts. However with the use of investment appraisal decisions, the finance manager can assess cost of projects that are long term.

Making decisions is important for a finance manager. A finance manager must ensure that they make the right decision at the right time when it comes to investing money into a company. For a manager to come up with the right investment decision there are a number of tools open to managers to aid them in their decision, a key tool is the investment appraisal technique. The investment appraisal technique has in itself a number of different techniques which aid the manager with information and therefore let them know if it’s the right decision to invest. The different ways open to a manager involve calculating the net present value, assessing the capital structure, gearing and discounted cash flow.

“The net present value of an investment (project) is the difference between the sum of the discounted cash flows which are expected from the investment and the amount which

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