Business Finance Accounting Concept

Added on -2020-02-19

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Running head: BUSINESS FINANCEBusiness FinanceName of the Student:Name of the University:Author’s Note:
1BUISNESS FINANCETable of ContentsAnswer to Question 1:.....................................................................................................................2Question 1.a:................................................................................................................................2Answer to Question 1.b:..............................................................................................................2Answer to Question 2:.....................................................................................................................3Answer 2.a:..................................................................................................................................3Answer 2.b:..................................................................................................................................3Answer to Question 3:.....................................................................................................................4Answer 3.a:..................................................................................................................................4Answer 3.b:..................................................................................................................................5Answer to Question 4:.....................................................................................................................6Answer 4.a:..................................................................................................................................6Answer to 4.b:..............................................................................................................................6Reference & Bibliography:..............................................................................................................7
2BUISNESS FINANCEAnswer to Question 1:Question 1.a:As per the accounting concept, total asset of any company must be equal to the sum oftotal liabilities and total equities. Hence, if any company maximizes its assets, then it wouldresult in increase of liabilities and/or assets. However, in financial sectors, it is believed that theshareholders’ wealth can be maximized through dividend payments and/or causing rise in themarket values of the stocks. If XYZ limited plans to maximizes its assets, then it may help the company to increase itsincome. As the result, the company can pay more dividends to its shareholders and the marketvalue may also rise due to the better financial performance. Therefore, it can be stated thatmaximization of assets may help the company to maximize its shareholders’ wealth (Runkle etal. 2013).However, it is only possible if the company utilizes its assets efficiently to increase its netprofits and pays higher dividends to its shareholders. Moreover, as the market value of stocks arehighly dependable on various other factors, it may not rise for the better financial performanceonly. Hence, it cannot be ensured that maximization of assets will surely maximize shareholder’swealth (Bodie et al. 2014).Answer to Question 1.b:Nominal interest rate is the stated interest rate, which does not incorporate thecompounding periods for calculating the interest. It is calculated on the original principal only.

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