Question

Question 3. Firms often involve themselves in projects that do not result directly in profits. For example, Apple Inc. donated $50 million to Stanford University hospitals and another $50 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?

Answer 1

NO. THESE PROJECTS DOES NOT CONTRADICT GOAL OF MAXIMAIZATION OF SHAREHOLDERS WEALTH.

A wealth of a shareholder maximizes when the net worth of a company maximizes. To be even more meticulous, a shareholder holds share in the company/business and his wealth will improve if the share price in the market increases which in turn is a function of net worth. This is because wealth maximization is also known as net worth maximization.

And maximization of wealth depends upon decisions that directly or indirectly affects market price of the the share. The quantitative measures does contribute directly in bringing the market price upwards but a ton of qualitative factors also helps in getting thr price up. The donation of $100 million by Apple Inc reflects the same. This donation shows how Apple Inc as a member of society is concerned about others' welfare. They don't just earn for themselves but try to give back. All this builds up the reputation of an organization in the market and ultimately investor. This builds confidence in the investor that his money is being utilised good and put to a greater cause. This all results in better brand building of Apple as well.