1. The financial goals of a business organization - Part I Your professor has hinted that your next finance exam will include a series of questions asking you to analyze the goals of financial management. As you consider this task, you realize that there are several types of financial goals, including both normative and positive goals, shareholder wealth maximization, profit maximization, satisfying stakeholder interests, and corporate social responsibility. To get these concepts clear and organized in your mind, consider the following questions. What is true regarding the goal of stakeholder management? Check all that apply. It requires financial managers to supervise the magnitude, timing, and riskiness of the firm's cash flows, to maximize the market price of the firm's common stock. It requires financial managers to recognize and attempt to satisfy the interests and concerns of the firm's customers, employees, managers, creditors, suppliers, shareholders, and community. Although this goal is intuitively appealing, it is extremely difficult to implement, given the difficulties in reconciling stakeholders' equally important-but sometimes mutually exclusive and competing-objectives. It does not involve maximizing any one constituency's objective but achieving an acceptable level of each group's objectives. Profit maximization is not a useful decision-making device for the following reasons. Check all that apply. There are many different definitions of the term profit and many ways to express a profit (for example, total profit, rate of profit, or earnings per share), so comparing the performance of different companies is impossible. It has the capacity to evaluate differences in the riskiness of alternative decisions. It lacks the capacity to evaluate differences in the riskiness of alternative decisions. It links the firm's profits to the cash flows that are paid to shareholders. Maximizing shareholder wealth is considered to be a superior goal to either maximizing a firm's net profits or satisfying the interests of a firm's stakeholders. Which of the following reasons are used to justify this opinion? Check all that apply. It is theoretically possible to determine whether a particular decision and activity will increase or decrease the firm's shareholder wealth. It ignores the effect of timing changes and the riskiness of the firm's expected future cash flows on the value of the firm's common stock. It can be manipulated by postponing or eliminating necessary expenditures in order to maximize the firm's net income. It provides for the use of an impersonal and objective device, a share's market price, to measure whether the goal has been met