Answered: Justify favouring shareholders’ wealth…

Justify favouring shareholders’ wealth maximisation over profit maximisation as the goal of a firm whilst accounting for the role of the firm in society.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter1: The Role And Objective Of Financial Management

Section: Chapter Questions

Problem 2QTD

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Justify favouring shareholders’ wealth maximisation over profit maximisation as the goal of a firm whilst accounting for the role of the firm in society.

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Why do you think that wealth maximization is an appropriate goal of the firm? Does it lead to maximization of the wealth of shareholders? Does an attempt by the management to maximize value ofthe firm benefit the society? Explain.
Which of the following is NOT a way of stating the overriding goal of financial management? Select one: a. Maximising the value of the firm. b. Maximising the wealth of shareholders. c. Maximing the firm's share price. d. Maximising revenue.
Discuss ways in which shareholders of a company can encourage its managers to act in a way which is consistent with the objective of maximization of shareholders’ wealth.
The objective of financial management is to maximise the value of the firm. We can convert this into the objective of maximising shareholder value. Explain why wealth maximisation takes both risk and return into account.
Explain what is meant by agency relationships and agency costs. Why management may tend to pursue goals other than shareholder wealth maximization. Give some examples of agency costs incurred by shareholders in the agency relationship between the shareholders (owners) and management of a firm.
question 1 a) discuss ways in which a company's shareholders can encourage its managers to act in a way which is consistent with the objective of maximising shareholders wealth.
What is the primary goal of financial management in a corporation?A. Maximizing sales revenueB. Minimizing expensesC. Maximizing shareholder wealthD. Maximizing employee satisfaction
explain the advantages and disadvantages of wealth maximization from the perspective of a company’s Chief Financial Officer. Include the effect on company stakeholders – internal (managers, employees) and external (suppliers, shareholders). Make sure that you include the effect on company stakeholders – internal (managers, employees) and external (suppliers, shareholders).