Question

You are a financial manager in a public corporation. One of your engineers says that they can increase the profit margin on your flagship product by using a lower quality vendor.​ However, the product is likely to fail more often and will generally not last as long. Will taking your​ engineer's suggestion necessarily make shareholders better​ off? Why or why​ not?

Answer 1

Answer:

No, the particular suggestion never makes shareholders better off.

Explanation:

No, it isn't necessarily going to make investors better off.

Although we are cutting costs, that could boost earnings in the short term, we will deal with much more expensive permit problems and lost public image with our customers, possibly leading them to purchase from our rivals, that in the longer term would decrease cash flow.

• Having a commodity less expensive but of lesser quality is not the same as increasing the value of the shares.

therefore, we have to reject this offer.