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- What is meant by the goal of maximization of shareholder wealth?
- The government has passed regulations that require pollution controls, development restrictions, and pay equity over the years. But, can a firm still achieve the maximization of shareholder wealth? How?
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- Explain and evaluate how the primary of objective in financial management of maximizing shareholder wealth is at conflict with other objectives such as ensuring favorable outcomes for (Note if your organization is public sector consider the alternative objective of minimizing the net cost to the government)Discuss the topic of maximizing shareholder wealth. This topic has been researched and studied for many years, with mixed results. For example; Irving Fisher, a prominent American Economist, argued that maximizing shareholders wealth should be management’s primary goal. Conversely, Sollars and Tuluca suggested that shareholders should only be rewarded with returns that are commensurate with the risk they take. 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).It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is “expected” to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization.
- If a company’s board of directors wants management to maximize shareholder wealth, should the CEO’s compensation be set as a fixed dollar amount, or should the compensation depend on how well the firm performs? If it is to be based on performance, how should performance is measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value? Which would be the better performance measure? Why?• When looking to invest corporate dollars, is the top-down approach is preferred over the bottom-up approach? Why or why not?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.
- Firms often involve themselves in projects that do not result directly in profits. For example, Microsoft corporation donated $10 million to Stanford University hospitals and another $40 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not? What is the agency problem, and how might it impact the goal of maximization of shareholder wealth? What is corporate governance? What role does a corporation’s board of directors play in corporate governance? The manager of Golden Ray Corporation receives a bonus if company profits exceed $1,000,000 this year. During the final week of the year, the manager changes an accounting policy that will increase reported profits from $950,000 to $1,025,000, triggering his bonus. The change in profits of $75,000 will reverse itself in the next year, and the accounting change has no impact on…Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk project using equity, rather than debt financing. b. A supermarket chain decides to establish hardware stores which increases its systematic risk. c. A firm issues shares and uses the proceeds to pay off a bank loan. d. A firm issues bonds and uses the proceeds to repurchase stock. e. A firm significantly improves its operating cost control to boost profits.When valuing private companies, we use public companies as comparables to gain insights into how the capital markets assess the riskiness of the private company’s business. Are there any potential caveats to this approach?
- It is said that one of the goals of a company is wealth maximization. Whose wealth does a firm wants to enhance in wealth maximization? (answer: the firm's stockholders) Why is the answer stockholders?conducting further research into the idea whether shareholder wealth maximization is the be-all and end-all for a company"the basic rationale for the objective of shareholder wealth maximization is that it that it reflects the most efficient use of society's economic resources and thus lead to maximization of society's economic wealth. " Comment.
