Question

Compare and contrast the goal of profit maximization and the maximization of shareholder wealth. Do any 3 worth 2 marks each.

	Profit Maximization	Maximize Shareholder Wealth
Objective
Emphasis
Risk and Uncertainty
Advantage
Recognition of Timing of Return
Expectations and Goodwill

Answer 1

The main objective of profit maximization is to maximize the profits of a company.

The main objective of wealth maximization is to maximize the value of the shares.

Profit maximization emphasis is on short term objectives of the company.

Wealth maximization emphasizes on the long term goals of the company.

Profit maximization does not consider risk and uncertainty

Wealth maximization considers risk and uncertainty.

Profit maximization measures the operating efficiency of a company.

Wealth maximization helps in gaining a large market share by accelerating the growth of the company.

Profit maximization does mot consider the time value of money and ignores it.

Wealth maximization considers the time value of money.