Corporate Finance Overview along with the issues of Firm's goal - profit maximization vs. wealth maximization...

Corporate Finance Overview along with the issues of Firm's goal - profit maximization vs. wealth maximization and Agency issue.

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Corporate finance is the division of finance that deals with the funding of a corporation, capital structuring, and investment decisions to maximize profits and thereby shareholder value.

The objectives of corporate finance are Profit Maximization and Wealth Maximization. There are arguments regarding which of these objectives should be treated as primary one. Traditionally recommended objective of any business organisation is profit maximization. It is treated as the measure of efficiency. But wealth maximization aims at increasing the market value of the common stock of the company over time.

Another issue in corporate finance is the agency issue. Principal is the owners of the company and agents are the managers. Agency issue arises when the agents act on their own interest rather on principal’s. Shareholders want managers to work for their interest that is for the achievement of company objectives. But managers sometimes try to increase their own wealth and then arises agency issue between the owners and managers.

jeff jeffy answered 1 year ago

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