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Assessing the goal of Sports Products, Inc. and Managerial Finance

Text Case Study

Read the case study from the e-text, Principles of Managerial Finance, (11th ed. )by Gitman, Assessing the Goal of Sports Products, Inc. located at the end of Chapter One. Prepare a 700 words in which you respond to the questions at the end of the case.

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Sports Products, Inc.

Management, Jensen argued, "should act exclusively to maximize the long-run market value of economic enterprises" (Hsieh, 2007, p. 497). This means that Sports Products, Inc.'s management, in decision making, should always favor the decision that maximizes shareholder wealth rather than the decision which results to higher profit. In other words, shareholder wealth maximization "provides the basis for decision rules which determine corporate behaviour, e.g., if there is no capital rationing, select all positive net present value projects" (Poitras, 1994, p. 125). Shareholder wealth maximization as the main objective of financial management was developed from the maximization of the expected utility of the wealth of shareholders.

The maximization of the expected utility of the wealth of shareholders was the reason why shareholder invested in the equity of a corporation. A corporation is built primarily for the benefits of shareholders and not for the benefits of the corporation's management.

Listening in on the conversations of Loren Seguara and Dale Johnson, both employees of Sports Products, Inc., it would seem that the company has an agency problem. First, an agency problem ...

Solution Summary

The goal of sports products, inc. in managerial finance is discussed.