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Wealth maximization is the appropriate objective of an enterprise. When the firm maximizes the stockholder's wealth, the individual stockholder can use this wealth to maximize his individual utility. It means that by maximizing stockholder's wealth the firm is operating consistently towards maximizing stockholder's utility.

A stockholder's current wealth in the firm is the product of the number of shares owned, multiplied with the current stock price per share.

This objective helps in increasing the value of shares in the market. The share's market price serves as a performance index or report card of its progress. It also indicates how well management is doing on behalf of the shareholder.

However, the maximization of the market price of the shares should be in the long run. Every financial decision should be based on cost-benefit analysis. If the benefit is more than the cost, the decision will help in maximizing the wealth.

Implications of Wealth maximization. There is a rationale in applying wealth maximizing policy as an operating financial management policy. It serves the interests of suppliers of loaned capital, employees, management and society. Besides shareholders, there are short-term and long-term suppliers of funds who have financial interests in the concern. Short-term lenders are primarily interested in liquidity position so that they get their payments in time. The long-term lenders get a fixed rate of interest from the earnings and also have a priority over shareholders in return of their funds.

Wealth maximization objective not only serves shareholder's interests by increasing the value of holdings but ensures security to lenders also. The economic interest of society is served if various resources are put to economical and efficient use.

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Q: Is profit of wealth maximization an appropriate goal of corporations?
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Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization because?

Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization


Which is more comprehensive objective profit maximization or shareholder wealth maximization?

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.


Are wealth maximization and profit maximization related?

Not necessarily


Advantages of profit maximization?

Profit maximization increase the graph of outputs.


Is wealth maximization superior to profit?

yes


What are the similarities between profit maximisation objectives and wealth maximisation objectives?

Both profit maximization and wealth maximization have the objective of increasing the net worth.


What is Three basic reasons is profit maximization inconsistent with wealth maximization?

Profit maximization is a narrow view which accounts for only the difference between sales and costs Wealth Maximization is broader and more philosophical in approach. Wealth maximisation includes not exhaustively culture , synergy, value, potential and wealth


Maximization of shareholder wealth as a goal is superior to profit maximization because?

it is operating cost


What are the basic objectives of financial management?

The objective of financial management is wealth maximization rather than profit maximization. Wealth maximization means the total value of the firm.


What is the difference between profit maximization and wealth maximization?

Shareholder wealth (more commonly referred to as shareholder value) is talking about the value of the company generally expressed in the value of the stock. Profit maximization refers to how much dollar profit the company makes.


Can there be difference between profit maximization and shareholders wealth maximization?

Profit maximization is short term as compare to share holder's wealth maximization, Managers should focus on Share holder's wealth maximization because its what they are hired for. also there are sevseal reasons such as.... 1) the share holders wealth is be considered.. 2)profit maximization doesnt say which type of profit it should maximize-short term or long term 3)profit maximization ignores the social values but only aims at earning maximum profit. 4)wealth maximization also considers improving the goodwill of the organization


Profit maximization vsealth maximization in financial management of an organization?

Profit maximization is also about increasing the EPS (earning per share) of the shareholders and to maximise the net present worth. Main objective of co is profit maximization EPS: net profit/ no of shares outstanding. Wealth maximization is anything having value. Anything which can be expressed in money value or economic value which is considered as wealth. Baisc objective of a co is wealth maximization. How to increase the wealth: By producing a quality product at a competitive rate. By giving product at reasonable price. Good after sales service. this all things leads to increase in co's wealth.