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    BUSTAMANTE, Jilian Kate A (FM)

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    Jilian Kate Alpapara Bustamante
    This document contains responses to questions about stockholder wealth maximization. Response A defines stockholder wealth maximization as a goal of increasing share price and shareholder resources through corporate operations and decisions. It aims to maximize individual shareholder utility by optimizing shareholder capital. Response B states that if maximizing shareholder wealth is the goal, the CEO's compensation should depend on company performance metrics like net income growth rate, as the CEO can only impact shareholder wealth through operations and profits. Response C argues that maximizing shareholder wealth can conflict with other goals like ethics and legal compliance. Subjects like customer safety, environment, and societal good are essentially ignored in a pure shareholder wealth maximization

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    BUSTAMANTE, Jilian Kate A (FM)

    Uploaded by

    Jilian Kate Alpapara Bustamante
    28 views2 pages
    This document contains responses to questions about stockholder wealth maximization. Response A defines stockholder wealth maximization as a goal of increasing share price and shareholder resources through corporate operations and decisions. It aims to maximize individual shareholder utility by optimizing shareholder capital. Response B states that if maximizing shareholder wealth is the goal, the CEO's compensation should depend on company performance metrics like net income growth rate, as the CEO can only impact shareholder wealth through operations and profits. Response C argues that maximizing shareholder wealth can conflict with other goals like ethics and legal compliance. Subjects like customer safety, environment, and societal good are essentially ignored in a pure shareholder wealth maximization

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    This document contains responses to questions about stockholder wealth maximization. Response A defines stockholder wealth maximization as a goal of increasing share price and shareholder resources through corporate operations and decisions. It aims to maximize individual shareholder utility by optimizing shareholder capital. Response B states that if maximizing shareholder wealth is the goal, the CEO's compensation should depend on company performance metrics like net income growth rate, as the CEO can only impact shareholder wealth through operations and profits. Response C argues that maximizing shareholder wealth can conflict with other goals like ethics and legal compliance. Subjects like customer safety, environment, and societal good are essentially ignored in a pure shareholder wealth maximization

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    28 views2 pages

    BUSTAMANTE, Jilian Kate A (FM)

    Uploaded by

    Jilian Kate Alpapara Bustamante
    This document contains responses to questions about stockholder wealth maximization. Response A defines stockholder wealth maximization as a goal of increasing share price and shareholder resources through corporate operations and decisions. It aims to maximize individual shareholder utility by optimizing shareholder capital. Response B states that if maximizing shareholder wealth is the goal, the CEO's compensation should depend on company performance metrics like net income growth rate, as the CEO can only impact shareholder wealth through operations and profits. Response C argues that maximizing shareholder wealth can conflict with other goals like ethics and legal compliance. Subjects like customer safety, environment, and societal good are essentially ignored in a pure shareholder wealth maximization

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    BUSTAMANTE, Jilian Kate A.

    BSA 2B

    1. C.
    2. C.
    3. C.
    4. D.
    5. C.
    6. A.
    7. B.
    8. D.

    A. Explain stockholder wealth maximization.


    Shareholder wealth maximization holds that the target of all corporate operation
    is and should be a maximum return to shareholders. From a financial accounting
    viewpoint, this means increasing the price of the common shares of a company. The
    maximization of the resources of shareholders is considered the most acceptable and
    sustainable goal for a business concern. The criteria for the maximization of
    shareholder capital implies that a business concern can only take into account decisions
    that increase the market value of the share or the capital of the shareholders. The
    market value of the shares is viewed as a measure of the company's effectiveness and
    performance. If the company maximizes the wealth of the shareholders, this wealth may
    be used by the individual shareholder to increase his individual utility. It implies that the
    company is actively working to maximize the utility of shareholders by optimizing
    shareholder capital.

    B. If a company’s board of directors wants management to maximize shareholders’


    wealth, should the CEO’s compensation be set at a fixed amount, or should the
    compensation depend on how well the firm perform?
    If the board of board of directors wished management to optimize shareholder
    wealth, then the salary of the CEO should be focused on the company's net income
    growth rate because the CEO would only impact the shareholder's wealth up to the
    amount of operations or net income. Maximizing the shareholder's wealth would be the
    key financial goal of management, so all the operations carried out by the CEO and his
    management would be to increase revenue and net profits. Operating profits may be
    increased either by increasing gross profit or by reducing operating costs. Management
    may, therefore, increase gross profit by increasing revenues or increasing net revenue
    by those expenses.

    C. Can our goal of maximizing the wealth of stockholders conflict with other goals, such
    as avoiding unethical or illegal behavior? In particular, do you think subjects like
    customer and employee safety, environment and general good of society fit in this
    framework, or are they essentially ignored?
    Any shareholder's aim is to increase wealth as they prefer more wealth to less
    wealth. Therefore, the executives must work to increase the shareholders' profits and
    resources. Management can often make decisions based on their interests and
    therefore conflict with shareholders. I believe that the protection of customers and staff,
    the environment, and the general welfare of society fall into the context of maximizing
    stock value above all that is welfare. A pharmaceutical company manager , for example,
    does not report that a certain form of drug does increase the risk of cancer because he
    or she wishes to increase the selling of shares. The concern for consumer protection
    and the good of humanity has been entirely overlooked in this case.

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