Shareholders'' wealth maximization, Finance Basics

Shareholders' wealth maximization - Objectives of Business Entity

Shareholders' wealth maximization refers to maximization of the total present value of each decision made in the firm.  Net current value is identical to the difference among the present value of benefits received from a decision and the present value of the price of the decision. 

A financial action along with a positive net present value will maximize the wealth of the shareholders, at the same time as a decision along with a negative net present value will deduct the wealth of the shareholders. Below this goal, a firm will just take those decisions such result in a positive net present value.

Shareholder wealth maximization assists to solve the problems with profit maximization.  This is since, the goal as:

  • Considers time value of money via discounting the expected future cash flows to the present.
  • It recognizes risk via using a discount rate that is a measure of risk to discount the cash flows to the present.
Posted Date: 1/29/2013 1:16:26 AM | Location : United States







Related Discussions:- Shareholders'' wealth maximization, Assignment Help, Ask Question on Shareholders'' wealth maximization, Get Answer, Expert's Help, Shareholders'' wealth maximization Discussions

Write discussion on Shareholders'' wealth maximization
Your posts are moderated
Related Questions
WHat are the expected rates of reimbursement for this time frame for each player ?

What are the financial intermediaries? Financial Intermediaries: a. Mutual funds b. Pension funds c. Life insurance companies d. Banks

Solutions - Shareholders and Management Conflict Conflicts between management and shareholders may be resolved as follows like: 1. Pegging or attaching managerial compens

Disadvantages of Payback Period 1. Does not receive into account time value of money and supposes that a shilling obtained in the 1 st year and in the N th year have the sim

Interest Rate Levels and Stock Prices Interest rates contain two effects on corporate profits: a) Since interest rate is a cost, and like the higher the rate of interest the

Legal Rules - Factors Influencing Dividend a) Net purchase rule States that dividend may be paid from company's profit either past or present. b) Capital impairment r

Charleston Industrial revised its dividend policy and decided that it wants to maintain a retained earnings account of $1 million. The company''s retained earnings account at the e

What are the tasks of a financial system? Three Tasks of a Financial System are as follows: 1. Decreasing transaction costs 2. Decreasing financial risk 3. Giving liqu

why borrow from a country with a high interest rate instead of a country with a low interest rate