The only legitimate objective of any business is Long Term Maximisation of Shareholder Wealth’. Discuss
1. Executive Summary (max 400 words)
2. Mao Body of Report (max word count 1.600 words)
3. Appendices and References (These are outside the word count)
The argument that managers should seek to increase shareholder wealth begins with the premise that the society’s resources are scarce. Judicious use of scarce resources implies that resources should be directed toward higher net-value activities. If prices measure opportunity costs and benefits, the net value of an activity can be determined by subtracting the price of resources devoted to an activity from the sales revenues generated by the activity. Because a given activity might involve a multi-period commitment, employing resources that can be used for multiple periods (e.g., plant, property, and equipment), a net present value calculation is often necessary to compare cash inflows and outflows occurring in different periods. This net present value corresponds to the effect of the project on its owner’s wealth. These arguments render the following proposition: Judicious use of society’s resources implies each project’s owners maximize the value of their projects.