ASSIGNMENT 1

DEPARTMENT: MANAGEMENT SCIENCES (BUSINESS

ADMINISTRATION)
COURSE: BUSINESS FINANCE (MGT232)
SUBMITTED TO: SIR MUHAMMAD TAHIR
SUBMITTED BY: ABEER SULTAN
REGISTRATION NO: SP21-BBA-008

REQUIREMENTS:
What are the goals of the firm?

SOLUTION:

 To reduce the manufacturing cost

 To maximize sales
 To reduce expenses
 To maximize shareholders’ profit/dividend
If the manufacturing cost is less, the firm has got a competitive advantage in the market and has
the benefit of increasing sales. Increased sales help in reducing expenses and generating more
income which increases shareholders’ profit in a manufacturing business.
MAIN GOALS OF THE FIRMS:

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 1- Profit Maximization:
In economics, we usually believe that businesses are just interested in making a profit. Increased
profit means:
 Dividends for stockholders will be increased.
 More earnings will be available to fund research and development.
 Profitability increases the firm's resistance to takeover.
 Better profits allow for higher wages for employees.

2- Satisficing Profits:
 There is a division of ownership and control in many businesses. The company's owners
(shareholders) are rarely involved in the day-to-day operations of the company.
 This is a problem because, while owners may want to maximize profits, managers have
much less incentive to do so because they do not receive the same rewards (share
dividends).
 As a result, managers may achieve a minimum level of profit to keep shareholders
happy, but then focus on other goals, such as enjoying work and getting along with
coworkers. (for example, not dismissing them) This is a problem caused by the separation
of owners and managers.
 This 'principal-agent' conflict can be reduced to some extent by providing managers with
stock options and performance-based remuneration, though performance can be difficult
to evaluate in some industries.

3- Sales Maximization:
Firms frequently strive to grow their market share, even if this means sacrificing profit. This
could happen for a variety of reasons:
 Increased market share boosts monopoly power, allowing the company to raise prices and
profit more in the long run.
 Managers want to work for larger firms since it provides them with more prestige and
higher pay.
 Increasing market share has the potential to drive competitors out of business. For
example, the development of supermarkets has resulted in the closure of numerous small
businesses. Some businesses may engage in predatory pricing, which entails taking a loss
in order to drive a competitor out of business.

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 4- Growth Maximization:
This is identical to sales maximization, and it may entail mergers and acquisitions. With this goal
in mind, the company may be willing to accept lower profit margins in order to grow in size and
win market share. With more market dominance, it gains monopoly power and the authority to
determine prices.

5- Long Run Profit Maximization:

Firms may compromise short-term profits in order to increase long-term profits in specific
instances. Firms may lose money in the short run by investing extensively in new capacity, but
they will make more money in the long run.