Definition of shareholder wealth, Strategic Management

Assignment Help:

Alfred Rappaport's definition of shareholder wealth (value) 

Shareholder value = corporate (business) value - Debt

The corporate value represents the perpetuity of cash flows forecast to be generated by the organisation from all of its projects, discounted to present value; this would include the residual value of any assets at the end of the forecast period, also the value of any marketable securities (investments) the company owns.   In effect the value of a company and therefore shareholder  wealth would be the net present value (NPV) of all of the companies projects considered over a period of time, less the payment of any obligations e.g. debt.  NPV indicates that the present value of cash-flows from a project should exceed the opportunity cost of investment e.g. the cost of capital.  The main problems of this approach is deciding what discount rate to use, over what period of time to discount and forecasting cash-flows can be very uncertain.   

One way to ensure greater control over investment decisions is to use economic measures such as residual income (RI) and economic value added (EVA).  Both of these measures include a finance charge deducted to represent the opportunity cost of 'tying money up' within a division.  When considering RI or EVA as a measure for investment appraisal, the operating cash-flow generated when considering new investment, must exceed the hurdle cost of capital applied to the investment outlay.


Related Discussions:- Definition of shareholder wealth

Ideal mission statement of a business organisation, Question: a) (i) H...

Question: a) (i) How many components are there in an ideal mission statement of a business organisation? (ii) Name these components? b) Using the above named component

Strategy & principles-passing the test of moral scrutiny, Strategy & princi...

Strategy & principles:- Passing the Test of Moral scrutiny 1.   In choosing among strategic alternatives, companies' managers are well advice to embrace actions that are genui

What is organizational design, 1.Middle managers are often at the center of...

1.Middle managers are often at the center of efforts to develop tactical plans to implement established strategies. How are tactical plans typically established? What challenges co

Explain how material requirements planning improve operation, Explain how M...

Explain how Material Requirements Planning (MRP) might improve operations. Reduced stock holding MRP can simplify inventory control and levels of stock holding may be de

Strategic plan, To maximise the potential of our business I would like you ...

To maximise the potential of our business I would like you to prepare a strategic plan, specifically I would  like the plan to incorporate a mission statement, a SWOT analysis, a

Explain the importance of strategy development, Question 1: Custom Wine...

Question 1: Custom Wine Colorado Glasses of Leadville, Colorado, has just collected data from 75 defects from the day's production. a) As quality expert, you decide to con

Multidimensional performance measurement, Q. Multidimensional performance m...

Q. Multidimensional performance measurement? Multidimensional performance  indicators recognise that the constant drive to increase profitability can ultimately be self-defeati

Management decision - making case problem, Louise Nance had working on the ...

Louise Nance had working on the assembly line of the Jackson Manufacturing Company for about six months. During recent weeks, her supervisor, Ben Miller, noticed that her productio

Principles of total quality, There are three principles of total quality: c...

There are three principles of total quality: customer focus, continuous improvement, and teamwork. Using the South University online library, find three articles that describe curr

Common aims of transfer pricing systems, Q. Common aims of transfer pricing...

Q. Common aims of transfer pricing systems? The common aims of transfer pricing systems Motivate mangers: A transfer price ensures an internal cost is recognised by

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd