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Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization because?
Wiki User
∙ 11y ago
Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization
Wiki User
∙ 11y ago
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Maximization of shareholder wealth as a goal is superior to profit maximization because?
it is operating cost
Is profit maximization an appropriate for a business?
Profit maximization is the ONLY appropriate goal for a business. Even under a so-called "social responsibility" regime, a business only engages in such schemes because it thinks it can increase profits by doing so.
Can anyone be a shareholder in a business?
no because you are all ready a shareholder.
Can there be difference between profit maximization and shareholders wealth maximization?
Profit maximization is short term as compare to share holder's wealth maximization, Managers should focus on Share holder's wealth maximization because its what they are hired for. also there are sevseal reasons such as.... 1) the share holders wealth is be considered.. 2)profit maximization doesnt say which type of profit it should maximize-short term or long term 3)profit maximization ignores the social values but only aims at earning maximum profit. 4)wealth maximization also considers improving the goodwill of the organization
Short term profit maximisation is not appropriate objective for a business?
Because business take the long term aspects of the business and for that wealth maximization is more important than anything else.
What is meant by wealth maximization in a corporate finance environment How are corporate securities contingent claims on the firm's value?
Wealth maximization has been accepted by the finance managers, because it overcomes the limitations of profit maximization. Wealth maximization means maximizing the net wealth of the company's share holders. Wealth maximization is possible only when the company pursues policies that would increase the market value of shares of the company.
Why wealth maximization is a function of share price maximization?
because the maximazation is a Behavior that attempts to maximize such performance measures as revenue, profits, contribution margin, or expected net present value
Why is that profit maximization may not necessary lead to wealth maximization?
Because as the price of a commodity increases, the purchasing power of consumers reduces. Consumers will then shy away and only few people would be able to pay for the extra. Thus, increase in profit may not necessarily mean maximization of wealth.
Why is shareholder wwealth maximization be a beter operating goal than profit maximization?
A firm's operating goal should be to maximize shareholder wealth as it is shareholders who are the owners of the firm. Profit maximizing however is more of a personal/management oriented type goal as it only benefits those running the company. This problem is known as the Agency issue, and it is directly related to the asymmetry of information problem that all firms suffer from. Typically, higher ranking persons in a company, usually managers, know a lot more about the firms operations than do subordinates and common stock holders; this information may be exploited so that only profits and managements' personal pay packets are maximized, and shareholders who funded the firms operations by their purchase of ordinary equity benefit none as they experience no gain through increase in share value. In order to overcome this issue, several things can be done. For example, monitoring techniques can be put in place to ensure management is acting in shareholder interest and not their own, or alternatively, management pay packets can be directly linked to the goal of maximizing shareholder wealth. If and when this goal is achieved and shareholders realize gains, management may be paid a cash bonus or an allotment of shares. Put simply, shareholder wealth maximization should be the firms operating goal simply because they are financing the firms operations with their investing in the firm; to act against their interests is unethical, but still not unheard of.
Why shareholder wealth is so important?
Shareholder wealth is important to a company because it is the value that the shareholders have as a result of owning part of the company. A company usually faces the decision to pay off shareholder dividends or reinvest that wealth.
Can a partnership firm be a shareholder?
no, a partnership cannot become a shareholder because shareholders are large but a partnership is only between two persons and they share only between themselves.
Why a shareholder of a company can not purchase products of that company?
because he is aware of the cost price
