KIRSTINE JOYCE R.

CORDIAL
12- ABM PYTHAGORAS

1. Does profit maximization always lead to shareholders wealth maximization? Explain

It is always assumed that the main goal of any firm is to gain profit and a gradual increase in profit
levels as the firm grows. Profit maximization is when the total revenue from sales is greater than the
total cost of production. Firms set the product price and output in such a way that they bring maximum
returns. Firms tend to lower their cost of capital in order to achieve maximum profit and maximize
shareholders wealth. It is related to maximization of Earning per share of a firm. In my opinion,
shareholder wealth maximization can include the use of profit maximization decision-making rules. We
should use the shareholder maximization model for the firm’s decision making. The main objective of
profit maximization is to earn a larger amount of profit. The ultimate goal of the wealth maximization is
to improve the market value of its shares.
2. How do you think will PLDT investors react to this piece of information? Why do you think will
happen to its stock price? Explain.
Stocks increase or decrease in price on the basis of what investors think the stock is worth, not directly
because the company is doing well or in response to analyses of worth. Disappointing earnings results
tend to lower share prices for companies and decreased economic activity. Stock prices may go down,
and investors may start selling their shares and move to fixed-income investments like bonds. Interest
rates may be lowered to encourage people to borrow more. A simultaneous fall in stock values also
creates fear for the loss of wealth and purchasing power as the value of investments contracts.
B. How do you think will the stock market react to this piece of news? What do you think will happen
to Pure gold’s stock price after announcement?
Stock prices tend to rise when earnings results exceed market expectations, it is usually a function of a
growing economy and leads to greater investor confidence. Investor confidence in stocks leads to more
buying activity which can also help to push prices higher. When stocks rise, people invested in
the equity markets gain wealth. This increased wealth often leads to increased consumer spending, as
consumers buy more goods and services when they're confident they are in a financial position to do
so. When consumers buy more, businesses that sell those goods and services choose to produce more
and sell more, reaping the benefit in the form of increased revenues.
C. What do you think will be the effect of this project on the long-term profit of Petron Corporation?
What do you think will be the possible effects of this news on the share price of Petron Corporation?
Achieving a sufficiently high level of profit is crucial in sustaining long run business growth of Petron
Corporation. When a corporation's revenue increase, it's more motivated to produce output since the
more it produces the more profit it will earn. So, when costs of production fall, a firm will tend
to supply a larger quantity at any given price for its output. As higher profit means higher retained

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 earnings which in turn implies higher EPS (Earning Per Share). Increased profits can cause the share
price to rise as investors feel more confident about the company's future and demand for the stock
increases.

3. Discuss why dividend policy is very important role of a financial manager.

One of the most important financial decisions that a Financial Manager must make is related to the
company’s dividend policy. It determines how much cash I will receive as a shareholder and when. It is
necessary to determine if generated earnings will be reinvested in the company to improve operations
or if they will be distributed among shareholders. Dividend Decision is crucial to determine the portion
of earnings distributable as the dividend at the end of every reporting period. A company’s ultimate
objective is the maximization of shareholders wealth. It must, therefore, be very vigilant about its
profit-sharing policies to retain the faith of the shareholders. Without an organized dividend policy, it
would be difficult for the investors to judge the intentions of the management.

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