Which of the following will increase (V₀),the shareholder wealth maximization model of the firm: V₀·(shares outstanding)= Σ^∞_t=1 (π _t )/ (1+k_e)^t + Real Option Value. A) Decrease the required rate of return (k_e). B) Decrease the stream of profits (π_t). C) Decrease the number of periods from ∞ 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, leading to an increase in shareholder wealth. Decreasing the stream of profits (π_t) or the real option value or the number of periods from ∞ to 10 periods will decrease the present value of future cash flows and thus decrease shareholder wealth. Therefore, the only choice that will increase shareholder wealth is A).

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

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