Discuss why corporations should pursue market value maximization versus maximizing profit.
Discuss why corporations should pursue market value maximization versus maximizing profit.
Homework Answers
Maximizing value of the firms leads to a long term higher earnings (profits). Sometimes it may not be a good strategy to have a maximized profit initially but to have an investment that shall pay off much higher in the future. Increased future cash flows shall increase the value of the firm. Therefore the basic premise shall be to have a sustained higher profit, today or tomorrow. A higher sustainable profit shall lead to the maximized market value. It is so because market value is a function of valuations which in turn depend on the future cash flows and not just present year cash flows.
Maximization of market value happens from maximizing profit in the long run. The two are closely linked. however difference arises in terms of time. While profit maximization refers to the maximization of profit in near term or current year while maximization of value refers to sum of future profits/cash flows.
For example a firm that may not invest in new technology today may have a higher profit in current year but future profits shall reduce. This shall lead to a less market value and may lead to an eventual decline of the company.
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Discuss why corporations should pursue market value maximization
versus maximizing profit.
Discuss why corporations should pursue market value maximization vs maximizing profit.
Discuss why corporations should pursue market value maximization vs maximizing profit.
True or False: Modern large corporations pursue a variety of objectives rather than merely profit maximization.
True or False: Modern large corporations pursue a variety of objectives rather than merely profit maximization.
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explain why maximizing profit falls short of maximizing shareholders wealth
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