ECONOMICS

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COST ACCOUNTING

CAPITAL BUDGETING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The objective of management is the maximization of shareholders wealth. This should be the ultimate objective of capital budgeting decisions as well. Let’s assume you are hired as a financial adviser for Multiple Industries Corp. Your firm has two options:1. Starting an automated footwear manufacturing plant in an emerging market country. The project will have a 30-years life. Assume that all raw materials and production inputs are available in such country. The company will export the finalized shoes to USA.2. Starting a new car rental company in New York. This implies acquiring a new large fleet of passenger cars. The target customers will be the tourists visiting the city. Which option would you like to invest?
A
option 1
B
option 2
Explanation: 

Detailed explanation-1: -Shareholder wealth maximization is the idea that the main goal of a business’s managers should be to increase its stock price as much as possible.

Detailed explanation-2: -The main objective of Financial management is to ensure the maximization of the economic welfare of its shareholders. The maximization of economic welfare means maximization of wealth of its shareholders. Shareholder’s wealth maximization is reflected in the market value of the firm’s shares.

Detailed explanation-3: -Why is shareholders’ wealth maximization important? Shareholders’ wealth maximization is the only way to measure the value of a company. This is because shareholder value represents a company’s ability to make money for its shareholders in the future.

Detailed explanation-4: -Profit Maximization as its name signifies refers that the profit of the firm should be increased while Wealth Maximization, aims at accelerating the worth of the entity. Profit maximization is the primary objective of the concern because of profit act as the measure of efficiency.

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