A firm that does not earn the cost of capital in the long run will not maximize shareholder wealth.

Question

Quizplus · Accepted Answer

Maximizing shareholder wealth is one of the primary objectives of a firm, and this is achieved by earning a return that is greater than the cost of capital. If a firm is not earning the cost of capital in the long run, it is not generating enough profits to provide adequate returns to its shareholders, and thus, it will not be able to maximize shareholder wealth.

A Firm That Does Not Earn the Cost of Capital