About Lesson
a. The ultimate goal of the management is to increase the book value of the company and maximize the market value of its equity.
b. The book value of a company equals its assets minus its liabilities. And the management has direct control over it, through managing the retained earnings.
Book Value = Assets – Liabilities |
c. The market value of the company equals the market price times the number of shares of the company. The prices are determined by the market factors, especially the investor’s expectations about the amount, timings, and uncertainty of the future cash flows.
Market Value = Number of Shares × Market Price of Shares |