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MB0029

MB0029

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Published by Mithesh Kumar
Give me the feedback n comments on kumar.mithesh@gmail.com
Give me the feedback n comments on kumar.mithesh@gmail.com

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Categories:Types, Research
Published by: Mithesh Kumar on Jul 01, 2010
Copyright:Attribution Non-commercial

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10/18/2012

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ASSIGNMENTS- MBA Sem-II MB0029 ± FINANCIAL MANAGEMENT
Mr. Mithesh Kumar Reg. No.
 
5
20930668 Page 1
ASSIGNMENTS- MBASEM-II
 Subject code:
MB0029Subject Name: FINANCIAL MANAGEMENTSet 1& Set 2
 Submitted By:
Mr. Mithesh KumarReg. No.
 
5
20930668
 
948-000-9987Kumar.mithesh@gmail.com 
 
ASSIGNMENTS- MBA Sem-II MB0029 ± FINANCIAL MANAGEMENT
Mr. Mithesh Kumar Reg. No.
 
5
20930668 Page 2
Q
.1
:-
Why wealth maximization is superior to profit maximization in today¶scontext? Justify your answer
 Profit maximization has been considered as the legitimate of a firm because profit maximization is based on the cardinal rule of efficiency. Under perfectcompetition allocation of resource shall be based on the goal of profit maximization.A firm¶s performance is evaluated in terms of profitability. Investor¶s company¶s performance can be traced to the goal of profit maximization. But .the goal of profitmaximization has been criticized on many accounts.Wealth maximization had been accepted by the finance mangers, because it overcomes the limitations of profit maximization. Wealth maximizationmeans maximizing the net wealth of the Company¶s share holders.wealthmaximization is possible only when the company pursue policies that would increasethe market value of shares of the company.
Superiority of Wealth Maximizations over Profit Maximizations
 
It is based on cash flow, not based on accounting profit.
 
T
hrough the process of discounting it takes care of the quality of cashflows. Distant Cash flows are uncertain. Concerting uncertain cash flows intocomparable values at base period facilitates better comparison of projects.
T
here are various ways of dealing with risk associated with cash flows.
T
heserisk are adequately considered when present values of cash flows are taken toarrive at the net present value of any project
 
In today¶s competitive business scenario corporate play a key role. Incompany form of organization, shareholders own the company but themanagement of the company rests with the board of directors.
 
Directors are elected by shareholders and hence agents of the shareholders.Company management procures funds for expansion and diversification fromCapital Markets.
 
When a firm follows wealth maximization goal it achieve maximization, itachieves maximization of market value of share.when a firm practices wealth
 
ASSIGNMENTS- MBA Sem-II MB0029 ± FINANCIAL MANAGEMENT
Mr. Mithesh Kumar Reg. No.
 
5
20930668 Page 3
maximization goal. It is possible only when it produces quality goods at lowcost. On this account society gains because of the societal welfare.
 
Maximization of wealth demands on the part of corporate to develop new products or render new service in the most effective manner.
T
his helps theconsumer as it will bring to the market the products and service thatconsumer¶s need.
 
Another notable feature of the firms committed to the maximization of wealthis that to achieve this goal they are forced to render efficient to their customerswith courtesy.
T
his enhance consumer welfare and hence the benefit to thesociety.
 
F
rom the point of evaluation of performance of listed firms,the most remarkable measure is that of performance of the company inthe share market. Every corporate finds its reflection on the market value of shares of the company.
T
herefore, shareholder wealth maximization could beconsidered a superior goal compared to a superior goal compared to profitmaximization.
 
Since listing ensures liquidity to the shares held by the investors, shareholder can reap the benefits arising from the performance of company only when theysell their shares.
T
herefore, it is clear that maximization of market value of share will lead to maximization of the net wealth of shareholders.
Q
.2
:-
Your grandfather is 7
5
years old. He has total savings of Rs.80,000. Heexpects that he live for another 10 years and will like to spend his savings bythen. He places his savings into a bank account earning 10 per cent annually. Hewill draw equal amount each year- the first withdrawal occurring one year fromnow in such a way that his account balance becomes zero at the end of 10 years.How much will be his annual withdrawal?
Present Value (PV) = 80000/-Amount (A) = ?Interest Rate (I) = 10% No. of Year (N) = 10

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