Study Questions - Study Questions Chapter 1 1-1 What are some of the problems involved in the use of profit maximization as the goal of the firm

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Study Questions Chapter 1 1-1. What are some of the problems involved in the use of profit maximization as the goal of the firm? How does the goal of maximization of shareholder wealth deal with those problems? The problem with the use of profit maximization as the goal of the firm falls in three major areas. Profit maximization does not take into consideration risk, timing, and the shareholder’s interest. Profit maximization does not factor in is one opportunity is riskier than another. This form of goal setting also does not factor in the timing of the return, whether the return will be short term or long term. Profit maximization also does not consider shareholder interest, if a firm does not consider shareholder interest then shareholders will not be happy and pull their money out of the firm and it will also make it harder to find new investors. The goal of maximization of shareholder wealth deals with those problems by addressing them. To maximize the shareholder’s wealth a firm needs to act in a way to drive the price of the stocks up. This means
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This note was uploaded on 06/28/2010 for the course FIN/370 SA09BSB02S taught by Professor Edwarddavid during the Spring '09 term at University of Phoenix.

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Study Questions - Study Questions Chapter 1 1-1 What are some of the problems involved in the use of profit maximization as the goal of the firm

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