RELATIONSHIP AMONG DECISIONS, RETURN, RISK AND SHARE VALUES
Any action of the financial manger that (i) increases the level of expected return (D,g) without changing risk (k,) should increase share value, (ii) reduces the level of expected return without changing risk should reduce share values. Likewise, any action that increases/reduces risk (required return) will reduce/increase share value. Since financial decisions affect both return and risk, an assessment of their effect on value must form part of the decision making process. This Section illustrates their impact on share values.