Is Company's Primary Aim to Maximize Shareholders' Wealth or Share Price

Question

a. The primary financial objective of a company is the maximization of the wealth of shareholders …per corporate finance theory.    However, this objective is usually replaced by the surrogate objective of maximization of the company’s share price.    Discuss how this substitution can be justified.
b. Explain why maximization of a company’s share is preferred compared to maximization of sales …as a financial objective.      

Summary

The question belongs to Finance and it is about the financial objective of a company in maximization of wealth of shareholders. But sometimes this objective is set aside or replaced by an objective of increasing the company’s share price. This statement has been explained in the solution in detail.

Total Word Count 433

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