Question

It is generally argued that the corporate objective of shareholder wealth maximization should override that of profit maximization. Distinguish these objectives and explain why wealth maximization should take precedence over profit maximization. (10 marks)

Answer 1

The objective of maximizing of shareholder wealth is a long-term goal that is attained by a series of short-term decisions to preserve or exceed the expected value of shareholders. Because satisfying the interests of stakeholders can help the company make money and add value to its shareholders.

Because the fundamental goal of the business concern under this notion is to improve the value or wealth of the shareholders, wealth maximization is superior than profit maximization. The comparison of the value to the cost connected with the business concern is considered in wealth maximization.