Wealth Maximisation
Wealth Maximization & Functions of Finance – Financial Management Assignment of MB0029
MBA assignments of Financial Management for MB0029:
Offer your arguments in favor of wealth maximization of one of the goals of financial Management and Functions of Finance.
Wealth Maximization:
Wealth maximization has been accepted by the finance managers, because it overcomes the limitations of profit maximization. Wealth maximization means maximizing the net wealth of the company’s share holders. Wealth maximization is possible only when the company pursues policies that would increase the market value of shares of the company.
There are some arguments which are superior in wealth maximization:
Wealth maximization is based on the concept of cash flows. Cash flows are a reality and not based on any subjective interpretation. On the other hand there are many subjective elements in the concept of profit maximization.
It considers time value of money translates cash flows occurring of different periods into a comparable value of cash flows is considered critically in all decisions as it incorporates the risk associated with the cash flow stream.
An example of Wealth maximization:
X LTD is listed company engaged in the business of FMCG (fast moving consumer goods). Listed means the company’s share are allowed to be traded the officially on the portals of the stock exchange, the board of directors of X LTD.
Take a decision in one of the bond meeting to enter into the business of power generation. When the company informs the stock exchange of the conclusion of the meeting of the decision taken the stock market reacts unfavorably with result that the next days’ closing of quotation was 30% less than of the previous day.
The question now is why the market reacted in this manner. Investors in this FMCG Company might have thought that the risk profile of the new business (power) that the company wants to take up is higher compared to the risk profile of
MBA assignments of Financial Management for MB0029:
Offer your arguments in favor of wealth maximization of one of the goals of financial Management and Functions of Finance.
Wealth Maximization:
Wealth maximization has been accepted by the finance managers, because it overcomes the limitations of profit maximization. Wealth maximization means maximizing the net wealth of the company’s share holders. Wealth maximization is possible only when the company pursues policies that would increase the market value of shares of the company.
There are some arguments which are superior in wealth maximization:
Wealth maximization is based on the concept of cash flows. Cash flows are a reality and not based on any subjective interpretation. On the other hand there are many subjective elements in the concept of profit maximization.
It considers time value of money translates cash flows occurring of different periods into a comparable value of cash flows is considered critically in all decisions as it incorporates the risk associated with the cash flow stream.
An example of Wealth maximization:
X LTD is listed company engaged in the business of FMCG (fast moving consumer goods). Listed means the company’s share are allowed to be traded the officially on the portals of the stock exchange, the board of directors of X LTD.
Take a decision in one of the bond meeting to enter into the business of power generation. When the company informs the stock exchange of the conclusion of the meeting of the decision taken the stock market reacts unfavorably with result that the next days’ closing of quotation was 30% less than of the previous day.
The question now is why the market reacted in this manner. Investors in this FMCG Company might have thought that the risk profile of the new business (power) that the company wants to take up is higher compared to the risk profile of