An answer to this question depends upon the time value of money. As a result, the prospective stream of earnings per stock would be more uncertain if these projects were undertaken.
This financial risk is another uncertainty in the minds of investors when they judge the firm in the marketplace. Objective Profit Maximization objective leads to exploiting employees and consumers. A firm could always raise total profits by issuing stock and using the proceeds to invest in Treasury bills.
This value is discounted a some rate,this rate depends on the certainty or uncertainty factor of the expected benefits.
They forget about thecustomer. So, for gaining the larger amount of profit a finance manager has to take such decision which will give a boost to the profitability of the enterprise.
Otherwise, it will lose its capital and cannot be able to survive in the long run. Things change when it comes time to re-elect or replace these board members.
The objective of financial management is profit maximisation. Why wealth maximization is considered to be better operating goal than Profit maximization?
Say there are two companies doing the same thing. Ezra Soloman, wealth maximisation also maximises the achievement of other objectives.
Profit is the basic requirement of any entity. Any course of action that has net present worth above zero or in other words, creates wealth should be selected. The conflict of interests between shareholders and executives is an example of the "principle-agent problem.
The company will usually adjust influential factors such as production costs, sale price, and output levels as a way of reaching its profit goal. They will invest somewhere else. Social Responsibility is one of the most important objectives of many firms.Profit Maximization is the overall objective of business enterprises to earn profits.
wealth maximisation focus on maximising the net present value. Wealth Maximization vs Profit Maximization: Profit maximization is short term strategy and focuses on making profits in the short term, Wealth maximization takes on a different, modern approach, focus on maximizing wealth in the long run as opposed to making short term gains.
The essential difference between the maximization of profits and the maximization of wealth is that the profits focus is on short-term earnings, while the wealth focus is on increasing the overall value of the business entity over time.
These differences are substantial, as noted below: Plann.
Profit vs Wealth Maximization is a common but crucial question. The ultimate goal of financial management is to maximize the wealth of its shareholders.
A simple and comprehensive presentation on Profit maximization v/s Wealth Maximization. By Arvinder Pal Kaur Faculty of Management Northwest.
Difference Between Profit Maximization and Wealth Maximization May 8, By Surbhi S 12 Comments Financial Management is concerned with the proper utilization of funds in such a manner that it will increase the value plus earnings of the firm.Download