1. It is often argued that the goal of financial management is to maximize the value...

1. It is often argued that the goal of financial management is to maximize the value of the firm for its owners. Do you agree that this is the proper goal? Why or why not?

2. Here, Goizueta defends Coca-Cola’s stated mission: "to create value over time for the owners of our business.”Do you find his arguments persuasive? Why or why not?

Expert Solution

Answer(1): Yes, This is true. Now in modern era, the primary goal of the firm is to maximize the value of firm's owners. Shareholders are the owners of the firm. Shareholder's wealth maximization is the greater goal then profit maximization, shareholders give their hard earned money to the company for running its business, they get dividend income in return, to motivate them, they are provided capital appreciation, by increasing the value of company's share in the share market, company does so to buyback the outstanding shares from the market if share is not doing well and not giving profit to shareholders.

Answer(2): This is stated in Coca-Cola's mission statement, "To maximize share owners' value over time". This statement is correct. Coca-cola argument is persuasive. Profit maximization is a traditional approach while shareholder's wealth maximization is the modern approach. Coca-coal works is creating value to its shareholders because if shareholder's wealth is maximized, overall market capitalization of a company increases. Company measures the per share progress, as the share is not going up from few years, it is moving in the range of $40 to $50, company may also think about buyback the shares to increase per share value.

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