A financial manager's goal of maximizing current or short-term earnings may not be appropriate because
A) it fails to consider the timing when shareholders want increased earnings and may instead consider the manager's own goals.
B) increased earnings may be accompanied by unacceptably higher levels of risk.
C) earnings are subjective; they can be defined in various ways such as accounting or economic earnings.
D) All of the options are true.

Question

Quizplus · Accepted Answer

A financial manager's goal of maximizing current or short-term earnings may not be appropriate for several reasons. Firstly, it fails to consider the timing when shareholders want increased earnings and may instead consider the manager's own goals. Secondly, increased earnings may be accompanied by unacceptably higher levels of risk. Finally, earnings are subjective; they can be defined in various ways such as accounting or economic earnings. Therefore, all of the options are true, and none of them can be ignored while determining the appropriate financial goal for maximizing shareholders' wealth.

A Financial Manager's Goal of Maximizing Current or Short-Term Earnings