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Justify and criticize the unusual assumption made in finance literature that the objective of a company is maximize the wealth of it shareholder do not consider the problem of how is to be measured?
Wiki User
∙ 13y ago
Justify and criticise the usual assumption made in finance literature, that the objective of a company is to maximise the wealth of its shareholders
Wiki User
∙ 13y ago
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Which is more comprehensive objective profit maximization or shareholder wealth maximization?
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.
What is shareholder wealth maximization model?
Shareholder Wealth Maximization Model, unlike simple profit-maximization incorporates the time dimension and risk. The Shareholder-Wealth Maximization model (SWM) goal states that the objective of a firms management should be to maximize the present value of the expected future cash flows to equity owners (shareholders).Consider cash flows to be the same as profits. Hence, the value of a firms stock is equal to the present value of all expected future profits, discounted at the the shareholders required rate of return.
Profit maximization is the basic objective of firm?
A firm's main objective should be to make decisions that maximize the value of the company for its owners, and as the owners of a company are its shareholders, the main financial objective should be 'the maximization of shareholder wealth'. Since shareholders receive their wealth through dividends and capital gains, shareholder wealth will be maximized by maximizing the value of dividends and capital gains that shareholders receive over time. Problems with the 'maximization of profits' objective: Firstly, there are quantitative difficulties associated with profit. Maximization of profits as a financial objective requires the profit to be defined and measured accurately, and that all the factors contributing to it are known and can be taken into account. It is very doubtful that this requirement can be met on a regular basis. E.g- If 5 auditors go into the same company, it is very likely that each will come out with a completely different profit figure. A second problem concerns the timescale over which the profit should be maximized. Should profit be maximized in the short term or the long term?? Given that profit considers one year at a time, the focus is likely to be on short-term profit maximization at the expense of long-term investment, putting the long term survival of the company into doubt. There are many examples of companies going into liquidation shortly after declaring high profits. Check out - Polly Peck Plc's dramatic failure in 1990! (good example) The third problem is that profit does not take account of or make any allowance for risk! It would be inappropriate to concentrate efforts on maximizing accounting profit when this objective does not consider one of the key determinants of shareholder wealth. So the 'maximization of profit' is not a suitable core objective for a company. That is not to say that a company does not need to pay attention to its profit figures, since falling profits of profit warnings are taken by the financial markets as a sign of financial weakness. Instead these sort of profit targets/objectives should can serve a useful purpose in helping a company to achieve short-term or operational objectives within its overall strategic plan.
Modernisation as a planning objective explain?
modernisation as a planning objective create contradiction in the light of employment generation? Explain.
What is an economic objective?
the objective of economical in business and finance is to make financial and business forecasts basd on trends of past performance
Objective of management?
From a theoretical point of view, the ultimate objective of any manager should be to maximise shareholder wealth.
If all companies had an objective of maximizing shareholder wealth would people overall tend to be better or worse off?
If all companies had an objective of maximizing shareholder wealth would people overall tend to be better or worse off?
What are the objective of literature?
The objective of literature is to entertain or explain something to someone. Most literature is either written as fiction or non-fiction.
Which is more comprehensive objective profit maximization or shareholder wealth maximization?
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.
What is the primary objective of the firm?
The primary objective of a firm is to maximize profit and shareholder value while meeting the needs of its customers and stakeholders, and operating in a sustainable and ethical manner. This involves making strategic decisions that optimize resources and generate long-term growth and success.
Why is Stephen Gunzenhauser such an awful conductor?
First, we must verify the assumption that Stephen Gunzenhauser is "an awful conductor". Are there objective and credible citations to support this assumption?
What is the difference between assumptions and personal jugement?
assumption is objective and personal judgment is subjective
Explain the rationale for selecting shareholders wealth maximizatio as the objective of the firm?
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
What is objective point of view in literature?
The objective point of view is when the writer tells what happens without stating more than can be inferred from the story's action and dialogue.
Objectve of hrn in present content?
The traditional objective of a firm is to maximize shareholder wealth. This is mostly done through profit maximisation. This objective is questionable now though as the pursuit of profit can come at the expense of natural resources, the environment, labour standards etc.
Does math differ from the study of literature?
Studying math and studying literature are two different things, and differ greatly. Specifically, math deals with problems that have a definitive answer, while literature is about interpretation and objective insight.
WHAT IS THE difference between a value assumption and a reality assumption?
Reality assumptions are beliefs that each of us hold concerning what we feel is true and factual about the way things are in the world. A value assumption is when we give things an assumed value. An example is the belief that humans have a higher value than animals.
