The management's primary goal is stockholder wealth maximization, which, translates into _____.
A) maximizing the value of the firm as measured by the price of its common stock
B) maximizing the earnings per share of the stockholders
C) maximizing the dividend received by stockholders
D) maximizing the net income earned by the company
E) maximizing the managerial compensation (incentives)

Question

Quizplus · Accepted Answer

Stockholder wealth maximization translates into maximizing the value of the firm as measured by the price of its common stock. This means that the management's primary goal is to increase the share price of the company, which ultimately results in an increase in the wealth of its shareholders. Maximizing earnings per share, dividends, or net income may contribute to an increase in share price, but these goals are not as directly related to stockholder wealth maximization as the value of the firm itself. Maximizing managerial compensation is also not a direct measure of stockholder wealth maximization, as it does not necessarily result in an increase in the value of the firm.

The Management's Primary Goal Is Stockholder Wealth Maximization, Which, Translates