A manager should attempt to maximize the value of the firm by changing the capital structure if and only if the value of the firm increases: A. as a result of the change. B. to the sole benefit of the managers. C. to the sole benefit of the debtholders. D. while also decreasing shareholder value.

Question

Hugh Thomas

Business

6 September, 15:20

A manager should attempt to maximize the value of the firm by changing the capital structure if and only if the value of the firm increases: A. as a result of the change. B. to the sole benefit of the managers. C. to the sole benefit of the debtholders. D. while also decreasing shareholder value.

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Answers (1)

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Bentley Conrad · Answer 1

Option a

Explanation:

In simple words, value maximization refers to the process under which the managers of an organisation tries to make or increase the existing economic profits, that is, the money left with the organisation after paying for the obligations of all the money providers including the lat in hierarchy, the equity shareholders.

Value maximization can be performed by changing the capital structure which affects the payment obligations. The value maximization affects all the stakeholders of the organisation therefore, the decision should be made by tasking into consideration them all.