Choosing a Capital Structure What is the primary goal of financial managers.
{"Image DocumentName": "Choosing a Capital Structure", "Image ImageDescription": "What is the primary goal of financial managers? Maximize stockholder wealth. We want to choose the capital structure that will maximize stockholder wealth. We can maximize stockholder wealth by maximizing the value of the firm or minimizing the WACC. Remind students that the WACC is the appropriate discount rate for the risk of the firm\u2019s assets. We can find the value of the firm by discounting the firm\u2019s expected future cash flows at the discount rate \u2013 the process is the same as finding the value of anything else. Since value and discount rate move in opposite directions, firm value will be maximized when WACC is minimized. Remind students that a firm is just a portfolio of projects, some with positive NPVs and some with negative NPVs when evaluated at the WACC. The value of the firm is the sum of the NPVs of its component projects. We already know that lower discount rates increase NPVs; consequently, decreasing the WACC will increase firm value", "Image XResolution": "37", "Image YResolution": "37", "Image ResolutionUnit": "Pixels/Centimeter", "Image Software": "SlidePlayer", "Image YCbCrPositioning": "Centered"}