Question

What is meant by wealth maximisation?

Hint:

Wealth maximisation prioritizes long-term growth and value creation over short-term profit, ensuring sustainable business success.

Answer 1

Step 1: Understand the goal of wealth maximisation.
Wealth maximisation refers to the process of making financial decisions that increase the value of a firm, particularly in terms of the market price of its shares, which ultimately benefits the shareholders.
Step 2: Why is wealth maximisation important?
Wealth maximisation is important because it focuses on the long-term sustainability and growth of a company. It is a more holistic approach compared to profit maximisation, as it considers both the time value of money and the risk associated with investments.
Step 3: Conclusion.
Wealth maximisation focuses on increasing the shareholders’ wealth by enhancing the value of the company’s shares, which reflects long-term profitability, growth, and strategic success.