8099
profit maximization &wealth maximization of shareholders.
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
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.
Value maximization and profit maximization are very much related, the main difference being- value maximization means increases in owners' wealth achieved by maximizing of the value of a firm's common stock. profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. the other difference among the two could be sited as- value maximization is seen as long term objective of a firm, whereas profit maximization is generally a short term objective.
Problems involved with the use of profit maximization as the goal of the firm due to numbers of reasons. 1 It ignore the timing of return. 2 It ignores the timing of returns. 3 It ignores the risk.
Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization
The objective of financial management is wealth maximization rather than profit maximization. Wealth maximization means the total value of the firm.
COB
profit maximization &wealth maximization of shareholders.
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.
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.
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
wealth maximisation is the appropriate objective of an enterprise financial theory asserts that wealth maximization is the single substitute for a stock holders utility. when the firm maximizes the stockholders wealth the individual stockholder can use this wealth to maximize his individual utility.it can be calculated as: stock holder current wealth in a firm =(n.o of share owned) *(current price per share)
owners of the firm
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.
Value maximization and profit maximization are very much related, the main difference being- value maximization means increases in owners' wealth achieved by maximizing of the value of a firm's common stock. profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. the other difference among the two could be sited as- value maximization is seen as long term objective of a firm, whereas profit maximization is generally a short term objective.
The arguments in favor of wealth maximization as the objective of a firm are that it aligns the interests of shareholders and management, promotes long-term sustainability, and encourages efficient allocation of resources. Profit maximization, on the other hand, may lead to short-term thinking, unethical practices, and neglect of other stakeholders' interests. By focusing on wealth maximization, firms can generate sustained value for shareholders and society as a whole.