Although profit maximization has long been considered as the main goal of a firm, shareholder wealth maximization is gaining acceptance among st most companies as the key...

      

Although profit maximization has long been considered as the main goal of a firm,
shareholder wealth maximization is gaining acceptance among st most companies as the
key goal of a firm.
Required:
(i) Distinguish between the goals of profit maximization and shareholder wealth
maximization.
(ii) Explain three limitations of the goal of profit maximization

  

Answers


Martin
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(ii) Limitations of profit maximization goal
- It's vague or unclear: does it refer to gross profits, operating profits, net
profits, long term or short term profits e.t.c
- It ignores the time value of money
- It ignores risk and uncertainty of benefits/ profits received in future
- It ignores the plight of other stakeholders such as consumers and employees and
only consider the owners
- It is a short term goal e.g. cost reduction or increase in selling price is short term
measure
marto answered the question on February 11, 2019 at 11:39


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