Correct Answer:
C. Maximize shareholder wealth
The primary goal of financial management is to guide a firm's financial decisions to create the most value for its owners. This involves making decisions about investments, financing, and dividends that enhance the overall worth of the company for its shareholders.
- C: Maximize shareholder wealth is correct. This goal considers the long-term value of the company, which includes both the current market price of the stock and any dividends paid. It accounts for risk and the timing of returns, aiming to increase the total economic value for shareholders.
- A: Maximize sales is incorrect. While sales are important, maximizing them without considering costs or profitability can lead to losses or inefficient operations, ultimately reducing wealth.
- B: Maximize profit is incorrect as the primary goal. Profit maximization can be short-sighted, potentially ignoring risk, the timing of cash flows, and ethical considerations, which can negatively impact long-term shareholder wealth.
- D: Minimize costs is incorrect. Cost minimization is a means to an end, not the ultimate goal. Overly aggressive cost cutting can compromise product quality, innovation, or customer service, which can harm long-term profitability and shareholder wealth.