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Do non profitable projects contradict the goal of profit maximization of shareholder wealth?
Although it may appear as a bad idea to invest in non-profitable projects (e.g. those with a negative net present value), companies often invest in them nonetheless as a strategic move. Often times, projects that yield a loss may be used to increase value in other operations of the company.
For example:
Canon may be loosing money developing new low-priced printers and the project yields a negative return. However, without investing in this project, Canon would be unable to pursue the profitable project of the ink cartridges.
What else can I help you with?
Does agency cost or agency problem interfere with shareholder wealth maximization?
Yes, agency costs and the agency problem can significantly interfere with shareholder wealth maximization. These issues arise when there is a conflict of interest between shareholders (the principals) and company executives or managers (the agents), leading to decisions that may prioritize personal benefits over shareholder value. For instance, managers might pursue projects that enhance their own job security or compensation rather than those that maximize shareholder returns. This misalignment can result in inefficiencies and reduced profitability, ultimately hindering the goal of maximizing shareholder wealth.
Why it is so hard to find extremely profitable projects?
It is hard to find extremely profitable projects, because it is hard to keep competition out. Profitability attracks competition, and unless a company can set up barriers to entry successfully, competition will drive the profit-margin down to the required rate of return.
In financial theory the objective is to maximize shareholder wealth and not maximize profit?
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.
What are the theoretical justifications of the net present value?
The net present value (NPV) is theoretically justified by the time value of money, which posits that a dollar today is worth more than a dollar in the future due to its potential earning capacity. NPV allows for the assessment of an investment's profitability by calculating the present value of future cash flows, discounted at a rate that reflects the risk and opportunity cost of capital. Additionally, NPV aligns with shareholder wealth maximization, as positive NPV projects are expected to increase the overall value of a firm. Thus, it serves as a critical decision-making tool for evaluating investment opportunities.
Where the insurance company invest their funds?
the insurance companies invest their fund in any profitable business opportunity such as in making roads, establishing bridges, tunnels and many more similar projects
Does agency cost or agency problem interfere with shareholder wealth maximization?
Yes, agency costs and the agency problem can significantly interfere with shareholder wealth maximization. These issues arise when there is a conflict of interest between shareholders (the principals) and company executives or managers (the agents), leading to decisions that may prioritize personal benefits over shareholder value. For instance, managers might pursue projects that enhance their own job security or compensation rather than those that maximize shareholder returns. This misalignment can result in inefficiencies and reduced profitability, ultimately hindering the goal of maximizing shareholder wealth.
Firms often involve themselves in projects for example IBM and Mobil Oil frequently support public television broadcast Do these projects contradict the goal of maximization of stockholder wealth Why?
i want the answer to these question Just my opinion.... Large companies need to "give back to the community" in order to receive maximum tax credits and deductions. Many choose public TV programing donations as part of their tax deduction package.
Does maximization of the company share price depends upon the level of earnings per share that is achieved?
share prices of companies depend on level of earnings of the company,but maximization of share prices depends not only on earnings but also on riskyness of the company's projects, its preferred capital structure ,its corporate responsibility programs,etc
Why it is so hard to find extremely profitable projects?
It is hard to find extremely profitable projects, because it is hard to keep competition out. Profitability attracks competition, and unless a company can set up barriers to entry successfully, competition will drive the profit-margin down to the required rate of return.
In financial theory the objective is to maximize shareholder wealth and not maximize profit?
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.
What are some disadvantages of stockholders wealth maximization?
Ah, I love loaded questions. Stockholder Wealth Maximization is the root goal of all business. But a narow focus on that can lead to neglecting many facets of business: Re-investment in technology and capital projects. Investing in Training and employee development Enviromental risk assesment and reduction. Comunity involvment and stewardship Basic Empoyee health and benifit (See Wall Mart )
What are the objectives of analyzing a business?
To find whether it is profitable and efficient, and in what ways; to see whether there can be or should be changes made and where and in what ways; to decide on the feasibility of a proposed project or projects.
What are the theoretical justifications of the net present value?
The net present value (NPV) is theoretically justified by the time value of money, which posits that a dollar today is worth more than a dollar in the future due to its potential earning capacity. NPV allows for the assessment of an investment's profitability by calculating the present value of future cash flows, discounted at a rate that reflects the risk and opportunity cost of capital. Additionally, NPV aligns with shareholder wealth maximization, as positive NPV projects are expected to increase the overall value of a firm. Thus, it serves as a critical decision-making tool for evaluating investment opportunities.
What are the difference between the goals of profit maximization and maximization of shareholder wealth?
The diffence in laymen's terms is all within the focus. If one is maximizing shareholder value, they are simply placing focus on what can raise value in the "short term" (increase stock price). If one is maximizing company value, they are looking from a different point of view which is usually on what you can really sell the company for, intangibles such as reputation, products in the works, workplace, etc. A person would be looking towards the future "long-term" outlook with this perspective.
Where the insurance company invest their funds?
the insurance companies invest their fund in any profitable business opportunity such as in making roads, establishing bridges, tunnels and many more similar projects
What are Significance of finance function in assuring corporate survival and growth?
The finance department analyzes business deals and projects to ensure they are profitable for the organization. In doing so, they are increasing the chances of the business surviving.
What does someone in IT Procurement do?
IT Procurement is a kind of work that deals with IT contracts, either with hardware, software, or services. Therefore, a person in IT Procurement should have ability of assessing and making a good and profitable contract for their IT projects.
