IAI Actuarial Core Principles · Business Finance · Key principles of finance
Which of the following is generally regarded as the primary financial objective of a company in standard corporate finance theory?
The primary objective is maximising shareholder wealth, reflected in the share price and dividends over time, since it accounts for risk and timing of returns, unlike accounting profit or market share.
- AMaximising the market share of its products
- BMaximising current-year accounting profit
- CMaximising shareholder wealth, measured by share price and dividends over timeCorrect
- DMaximising the number of employees
- Minimising the dividends paid out
Explanation
Standard theory takes shareholder wealth maximisation as the primary objective, reflecting the present value of future returns allowing for risk and timing. Profit or market share can be pursued in ways that do not increase value.
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