Alpha University College MBA section II

Gemechu Hussein

1. Is there any difference between profit maximization and value maximization? Explain!

Yes there is clear cut difference between profit maximization and Value maximization.
Profit maximization is a traditional approach and value maximization is almost universally
accepted and appropriate goal of the firm. Where us Value maximization ensures fair
return to the shareholders, reserve fund for growth and expansion, promoting
financial discipline in the management.

The value maximization , often defined as the goal of business management , aims to
maximize the firm's value when a decision is made, whether it is an investment
decision, financing decision, dividend payment decision, or hedging decision.

Profit maximization is a process business firms undergo to ensure the best output
and price levels are achieved in order to maximize its returns. Influential factors
such as sale price, production cost and output levels are adjusted by the firm as a way of
realizing its profit goals. (https://www.futurelearn.com) profit maximization does not
take into account the business risk. Some businesses are less prone to market-related
shocks, such as political uncertainties, economic recessions, and more stable revenue and
cash flows.

2. Is it reasonable to expect firms to take actions that are in the public interest but are
detrimental to stockholders? Is regulation always necessary and appropriate to
induce firms to act in the public interest? Substantiate with real world examples

Public interest as actions taken to augment the welfare of the people or citizens of a
country and to protect the public from different issues that might affect them. It
includes regulations that protect the society and various members of the public.
Yes it may be necessary but not always.