Question

1. a) What is the ultimate goal of a firm? Is profit maximisation an acceptable goal?

Answer 1

The ultimate goal of a firm is increased shareholder value. Profit Maximization is not an acceptable goal because it is very short sighted. Suppose if a firm can increase their profits by not paying attention to environment and not following the proper standards. This will ensure good profits in the short term but in the long term, the firm might tarnish their image and it can lead to loss of trust between the firm and stakeholders. Hence, instead of profit Maximization, the firm must focus on Value Maximization for shareholders.