BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Amount of returns expected
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Timing of anticipated returns
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Risk associated with uncertainty of returns
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All of the above
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Detailed explanation-1: -The objective of wealth maximization takes into account–risk associated withuncertainty of returns.
Detailed explanation-2: -Wealth maximization means to earn maximum wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase the market value of the shares. The market value of the shares is directly related to the performance of the company.
Detailed explanation-3: -The objective of wealth maximization takes into accounta)Amount of returns expectedb)Timing of anticipated returnsc)Risk associated with uncertainty of returnsd)All of the aboveCorrect answer is option ‘D’.
Detailed explanation-4: -It is termed the main objective of the company. Profit maximization is companies’ economic objective to increase the company’s value. This increase in the company’s value is what shareholders and investors are looking for, who expect their investment in the company to be profitable.
Detailed explanation-5: -Yes, wealth maximisation is superior to profit maximisation, and wealth maximisation depends on cash flows and not profits. It considers the time value of money, uncertainties and risk factors when looking at discount rates.