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Maximizing shareholder wealth and maximizing profit goes hand in hand. A firm maximizes shareholder wealth by investing in projects that will increase profits and the cash flows of the firm, finding ways to prudently cut variable and fixed operating costs and creating products that will increase revenues. The firm's executives must also manage the company and its operations in a fiscally responsible manner in order to increase the profitability of the company. By taking these steps the firm therefore increases the shares of its stocks which increases shareholder wealth.
- shareholder's wealth - growth - dividend-payout ratio - leverage -
The agency problem is a result of the separation between the decision makers and the owners of the firm. As a result managers may make decisions that are not in line with the goal of maximization of shareholder wealth.
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
Shareholder wealth is the difference between what they paid for the shares and the cost of the shares now. CEOs are responsible for building shareholder wealth.
COB
Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization
The average wealth of shareholder
Maximizing shareholder wealth and maximizing profit goes hand in hand. A firm maximizes shareholder wealth by investing in projects that will increase profits and the cash flows of the firm, finding ways to prudently cut variable and fixed operating costs and creating products that will increase revenues. The firm's executives must also manage the company and its operations in a fiscally responsible manner in order to increase the profitability of the company. By taking these steps the firm therefore increases the shares of its stocks which increases shareholder wealth.
- shareholder's wealth - growth - dividend-payout ratio - leverage -
owners of the firm
when companies maximized shareholder stocks, it only shows that the company is in progress and supports a positive environment to people/employees who works in finance,marketing,production administration.Shareholder wealth is the market value of the firm's common stock. Shareholder wealth is calculated as the number of common shares outstanding times the market price per share (the price at which the firm's common stock trades for in the marketplace such as the New York Stock Exchange).The goal of shareholder wealth maximization is a long-term goal. Shareholder wealth is a function of all the future returns to the shareholders. Hence, in making decisions that maximize shareholder wealth, management must consider the long-run impact on the firm and not just focus on short-run (i.e., current period) effects. For example, a firm could increase short-run earnings and dividends by eliminating all research and development expenditures. However, this decision would reduce long-run earnings and dividends, and hence shareholder wealth, because the firm would be unable to develop new products to produce and sell.
If the company is public listed (trades in the stock market) their aim is shareholder wealth maximization whereas for a privately owned firm a profit maximization objective is appropriate.
The agency problem is a result of the separation between the decision makers and the owners of the firm. As a result managers may make decisions that are not in line with the goal of maximization of shareholder wealth.
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
Shareholder wealth is the difference between what they paid for the shares and the cost of the shares now. CEOs are responsible for building shareholder wealth.
How does the goal of maximization of shareholder wealth deal with uncertainty and timing?