Question

Define the value maximization of firm goal and describe the relationship between this goal and financial decisions.

Answer 1

Value maximisation can be also defined as shareholders value maximisation. Because the ultimate aim of the value maximization is that to increase the shareholders wealth. So it is the major motive of the manager that to increase the shareprice by allocating proper funds and proper strategies in business. A high value firm is more stable and investors will like to make their contribution to such firms. Every business needed shareholders contribution for its proper running. So they will consider the factors which are affecting the value of the firm.

So when we are talking about the value maximisation we should consider that how financial decisions are affecting the value maximisation. Ofcourse every financial decisions taken by the board of directors will affect the value of the firm. They need to decide the dividend policy. Because good dividend policy will definitely attract the investors. Apart from that there are many other financial decisions should be consider. How much debt and equity the firm is going to use, how they are maintaining the ratios, how they are going to plan for revenue , what are the company strategy and the fundamentals of the company are reason for making investment and this will help to increase the value of the firm and shareholders. These things should be taken care by the board of directors for the purpose of increasing the value of the firm.

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