Question

The primary objective of the corporate management team is to maximize shareholder wealth. The company's board of directors and the shareholders evaluate and review managerial actions based on the growth in the value of the firm.
Based on your understanding of what determines a firm's value, review the following:
What does the value of a firm depend on?
Option A The ability to generate cash flow that is available to distribute to the company's investors, including creditors and stockholders
Option B The ability to generate cash flow that is available to distribute to the company's stockholders only
Which of the options is most accurate?
When determining the value of a firm, which of the following statements is true?
-A financial asset is considered to have value only if it is acquired at its market value.
-A financial asset is considered to have value only if it has the ability to generate positive cash flows.
-A financial asset is considered to have value only if it is acquired at its book price.

Answer 1

Q.1. The ability to generate cash flow that is available to distribute to the company's investors, including creditors and stockholders

Q. 2: A financial asset is considered to have value only if it is acquired at its market value.

Explanation:

When we see the objective given in the question, the company is really interested to make positive cash flows and make the shareholders to get back good results. By looking at the goal, Option A stands right.

An asset value is determined only by the market. For example, if you have an flat for sale, the rate of flat is determined only by the market. So considering this example Option 1 matches for the second question.