Maximization of Shareholders Wealth
1. What are some of the problem involves in the use of profit maximization as the goal of the firm? How does the goal of maximization of stockholders wealth deal with doe’s problem?
The goal of profit maximization ignores two major factors which are timing and uncertainly, it is the cause of the problem of a firm. Using profit maximization project and investments are compared by examining expected values, not whether one project is riskier than the other. Profit maximization also ignores the timing of a projects returned, it inappropriately ignores future profit if the goal is concerned about the profit for the current year.
The goal of maximization of shareholders wealth deal with the problems brought up by profit maximization in quite a simple way, because Maximizing shareholders wealth just means modifying the goal of profit maximization to address the complexities of the operating environment. Since shareholders wealth maximization focuses on raising the market value of the existing shareholders common stock investor have to be careful with their decisions.
2. What are the different between the goals of profit maximization and maximization stockholders wealth, which goal do you think is more appropriate?
Profit Maximization refers to how much peso profit the company makes, it might seem like making profit as possible would yield the highest value for the stock but that is not always the case. Profit maximization is at best, a short-term goal of financial management and it used more as a theoretical goal but it ignores many real world issues that must be addressed in decision making. While maximization of shareholders wealth just means modifying the goal of profit maximization to address the complexities of the operating environment. Shareholders wealth maximization is the best choice for the main goal of a business because the effect of all financial decision is included in the decisions.
I think the more appropriate is maximization shareholders wealth
The goal of profit maximization ignores two major factors which are timing and uncertainly, it is the cause of the problem of a firm. Using profit maximization project and investments are compared by examining expected values, not whether one project is riskier than the other. Profit maximization also ignores the timing of a projects returned, it inappropriately ignores future profit if the goal is concerned about the profit for the current year.
The goal of maximization of shareholders wealth deal with the problems brought up by profit maximization in quite a simple way, because Maximizing shareholders wealth just means modifying the goal of profit maximization to address the complexities of the operating environment. Since shareholders wealth maximization focuses on raising the market value of the existing shareholders common stock investor have to be careful with their decisions.
2. What are the different between the goals of profit maximization and maximization stockholders wealth, which goal do you think is more appropriate?
Profit Maximization refers to how much peso profit the company makes, it might seem like making profit as possible would yield the highest value for the stock but that is not always the case. Profit maximization is at best, a short-term goal of financial management and it used more as a theoretical goal but it ignores many real world issues that must be addressed in decision making. While maximization of shareholders wealth just means modifying the goal of profit maximization to address the complexities of the operating environment. Shareholders wealth maximization is the best choice for the main goal of a business because the effect of all financial decision is included in the decisions.
I think the more appropriate is maximization shareholders wealth