Evaluate the following statement:
Managers should not focus on the current equity value
because doing so will lead to an overemphasis on short-term proﬁts at the expense of long-
Presumably, the current equity value reflects the risk, timing, and magnitude of all future cash flows, both short-term and long-term. If this is correct, then the statement is false.
The aim of financial management is the maximization of shareholder's wealth. Shareholder's wealth takes into consideration dividend payments and capital appreciation to the shareholders.
The concept of stakeholders take into account shareholders, customers, suppliers, employees and workers of an organization and is thus a wider concept.
Focusing merely upon current stock value i.e current market value is short sightednessfrom the point of managers. Managers should rather focus upon long term implications of the projects and financing decisions.
More attention should be assigned to the long term performance and efficiency of a firm with respect to dividend and investment decisions which cast a long term bearing on the operations and performanceof a firm
Answer to the question no.4
Ethics and Firms Goal:The goal financial management is to maximize the current value per share of the existing stock. The financial manager in a corporation makes decisions for the stock holders of the firm. Good decisions increase the value of the stock, and poor decisions decrease the value of the stock.
The goal of maximizing the value of the stock avoids the problem associated with the different goals such as maximizing profits, maximizing sales or market share,maximizing costs,beating the competition , surviving, avoiding financial distress and bankruptcy , maintaining steady earning growth etc. There are also many other goals and these present problems as a goal for the financial manager.
There are two types of goals, which are somewhat contradictory. It is not really possible to maximize both safety and profit.
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