Describe the value maximisation criterion, Financial Management

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Describe the value maximisation criterion

In applying the value maximisation criterion, term value is used in terms of worth to the owners, which is, ordinary shareholders. Capitalisation (discount) rate that is employed is, so, the rate that reflects time and risk preferences of the result of higher risk longer time period. Hence, a stream of case flows which is quite certain may be associated with a rate a 5 per cent, whereas a very risky stream can carry a 15 per cent discount rate.

 


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