Which of the following will increase (V₀),the shareholder wealth maximization model of the firm: V₀∙(shares outstanding)= $\Sigma$^$\infty$_t=1 ($\pi$_t)/ (1+k_e)^t+ Real Option Value. A)Decrease the required rate of return (k_e). B)Decrease the stream of profits ($\pi$_t). C)Decrease the number of periods from $\infty$ to 10 periods. D)Decrease the real option value. E)All of the above.

Question

Quizplus · Accepted Answer

Decreasing the required rate of return (k_e) will increase the present value of future cash flows, thereby increasing the shareholder wealth maximization model. The other options would decrease either the stream of profits or the value of the real option, resulting in a decrease in shareholder wealth maximization. Decreasing the number of periods could increase the present value of cash flows, but it is not the best choice as it would limit the firm's potential for future growth and profitability. Therefore, only option A is the best choice.

Which of the Following Will Increase (V0),the Shareholder Wealth Maximization Σ\SigmaΣ

Which of the Following Will Increase (V₀),the Shareholder Wealth Maximization $\Sigma$