Research and critical evaluation on the M&M (Modigliani and Miller) Essay

Research and critical evaluation on the M&M (Modigliani and Miller) models and the production of a report - Essay Example The paper presents the elementary propositions of the Miller-Modigliani approach and after presenting their models, put forward a categorical analysis and criticism with respect to optimization for shareholders’ returns in the context of arbitrage scenario (Chandra, 2002, pp.411-412, 417-418). Financial Decision Making in Achievement of Specified Business Objectives Financial Decision Making The financial decisions taken by a business firm to meet financial objectives must also fulfill the goals of specified business objectives. Finance is considered to be the lifeblood of a business concern. Hence management of the financial resources for an organization must be conducted in a manner as to satisfy the organizational goals. The gamut of financial decisions focus on key activities like planning, organizing, directing the capital requirements and the usages of the funds incorporated in a business organization. These financial activities must be pursued in order to meet key finan cial objectives like achieving a strong rate of return on the amount of capital invested. The business must target at achieving such levels of profits as would not only help in meeting the amount of investments made but also for helping the business to accumulate funds for the future. However, organizations must not only focus on achieving huge profits to augment the capital value of the stakeholders but must generate a holistic view in bettering the economic position of the firm (Joseph, 2005, pp.170-172).. The short term financial needs of a firm center on acquiring of short-term business assets in meeting the short-term liabilities of the concern. This aspect is known as the management of working capital, which is conducted to take care of the current solvent position of the concern (Chandra, 2002, pp.4-5). Maximizing Shareholder Value Most business organizations render importance to the issue of augmenting the value of the owners and shareholders of a business firm. The value of the owners or shareholders of a business firm reflects on the market value of the total amount of stock possessed by such. Market value of the stocks refers to the price quotes of such while being traded in stock exchanges. Wealth of the shareholders is maximized by the business organization through the augmentation of the present value of some future returns expected by the owners. Future returns depend on the accrual of dividends or of future sale proceeds of company stocks. The present value of such future income is calculated based on a specific rate of discount accounted on receiving cash dividends in the future period (Moyer, McGuigan, & Kretlow, 2008, p.5). Financial Strategy A business organization to perform effectively must formulate an adequate financial strategy to satisfy the business goals. An effective financial strategy drawn by any concern revolves around accomplishing two specific business needs. Firstly it endeavors to cite the sectors from which the firm can dra w in adequate amount of funds to meet its business needs. Secondly, it sets guidelines for the proper management of such funds within the organization to generate an efficient financial structure. The business organization must also look forward in maximizing the return on the investments made and in minimizing the rate of risks adhered to it (Bender & Ward, 2008, pp.4-6). The