RENIVA, King Joshua B.

May 22, 2020

BSA II Assignment #3
Financial Management

Goals of Corporate Finance

1. Shareholders wealth maximization
2. Profit maximization
3. Managerial reward maximization
4. Behavioral goals
5. Social responsibility.
Profit Maximization – is a short-term goal, to be achieved within one year; it is
basically interpreted to mean the maximization of profits within a given period of time. A
business enterprise may maximize its short term profits at the expense of its long-term
profitability.
Shareholder’s Wealth Maximization is a long term goal, since shareholders are
interested in future as well as present profits. Shareholders are interested in future as
well as present profits. Wealth maximization is generally preferred because it considers
(1) wealth for a long term, (2) risk or uncertainty, (3) the timing of returns, and (4) the
shareholder’s return. Timing of returns is important; the earlier the return is received; the
better, since a quick return reduces the uncertainty about receivingt the return, and the
money received can be reinvested sooner.

GOAL OBJECTIVE ADVANTAGES DISADVANTAGES

PROFIT  Large Profits 1. Easy to calculate 1. Emphasizes the short
MAXIMIZATION profits term
2. Easy to determine 2. Ignore risk or
the link between uncertainty
financial decision 3. Ignores the timing of
and profits. returns
4. Requires immediate
resources.
SHAREHOLDE  Highest 1. Emphasizes the 1. Offer unclear
R WEALTH market value longt-term relationship between
MAXIMIZATION of share 2. Recognizes risk or financial decisions and
capital uncertainty share price
3. Recognizes the 2. Can lead to
timing of returns management anxiety
4. Considers and frustration
shareholders return. 3. Can prorate aggressive
and creative accounting
practices.