a) In the conventional theory of the firm, the principal objective of a business is profit maximisation. Under the differences in consumer tastes and technology drive, price and output of a given product, firms aim to maximize profits. In contrast to this, discuss why traditional corporate financial theory focuses on maximizing stockholder/shareholders wealth instead of maximizing profits. b) At present, assuming a company focuses on maximizing shareholder wealth as its major goal. The managing director thinks this single goal is inappropriate and asks his co-directors for their views on giving greater emphasis on cash flow generation and profitability as measured by profits after tax and return on investment. Discuss.

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a Focus on Maximizing Shareholder Wealth vs Profit Maximization While the conventional theory of the firm emphasizes profit maximization as the primary objective traditional corporate financial theory ... View the full answer