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True or false? Please explain. Managers should maximize the firm's current market value, but only when...

True or false? Please explain.

Managers should maximize the firm's current market value, but only when maximization does not create unacceptable risks for shareholders.

Solutions

Expert Solution

True

Explanation: Taking unacceptable risk to increase the current share value is not ethical , as it affects the wealth of the shareholders. If the decision is very risky and not turn out as expected then the shareholders may lose wealth . This kind of practice is not acceptable as the main goal of financial management is shareholder's wealth maximization.

Therefore a manager should take only sufficient risk which the shareholders are willing to absorb, in order to increase the current market value.

jeff jeffy answered 2 years ago
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