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29 May, 10:32

Pfizer's spending of $7.6 billion in 2006 on research and development of new drugs is a capital budgeting decision but not a financing decision.

Real assets can be intangible assets.

Maximizing profits is the same as maximizing the value of the firm.

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  1. 29 May, 10:59
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    Pfizer's spending of $7.6 billion in 2006 on research and development of new drugs is a capital budgeting decision but not a financing decision.

    This is capital budgeting because the company has decided to introduce a new methodology or drug to maximise its profits.

    Financing capital is the one which provides the running expenses or improves the current processes of the business. It does not involve new ventures or experimentation.

    Real assets can be intangible assets.

    Real assets like skilled employees can be intangible assets.

    Intangible assets are those assets which cannot be physically seen or used but make up the substantial part of the asset value of business. For example a brand name, franchise agreements, patents etc. Skilled employees are also intangible assets.

    Real assets are all those assets which have some economic value e. g. machinery, building etc.

    Maximizing profits is the same as maximizing the value of the firm.

    The difference between value maximization and profit maximization is mainly a concern of publicly traded companies. It is possible for a company to focus on more short-term measures of success such as quarterly profits. It is also possible to focus on more long-term measures, such as the amount of equity versus debt. To do the first is to focus on profit maximization. To do the second is to focus on value maximization.
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