Explain why maximisation of a company’s share price is preferred as a financial objective to the…

1. The primary financial objective of a company is stated by corporate finance theory to

be the maximisation of the wealth of its shareholders, but this objective is usually

replaced by the surrogate objective of maximisation of the company’s share price.

Discuss how this substitution can be justified.

2. Explain why maximisation of a company’s share price is preferred as a financial

objective to the maximisation of its sales.

3. Discuss the ways in which the concepts of agency theory can be used to explain the

relationships that exist between the managers of a listed company and the providers of

its equity finance. Your answer should include an explanation of the following terms:

i. asymmetry of information;

ii. agency costs;

iii. the free-rider problem.

Attachments:

MID-SEMESTER-….pdf

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