Q: Compare the following goals and Explain why wealth

maximization is chosen by the firms?

Profit Maximization
Earnings Per Share
Wealth Maximization

1. Profit Maximization :
Profit maximization is a process by which a firm determines the price
and output level that returns the greatest profit after paying off all the
taxes. Primary focus is on profits. It could increase current profits while
harming firm and ignore changes in the risk level of the firm.
2. Earnings Per Share :
It is the profit which is allocated to every outstanding share of a
common stock of an organization. Its formula is the companys profit
per share divided by the number of outstanding shares that a company
has.It is very useful in measuring company performance and
profitability in future. It does not specify timing or duration of expected
returns. It also ignore changes in the risk level of the firm as in the
profit maximization. It calls for a Zero payout dividend policy.
3. Wealth Maximization :
A process that increases the current net value of business or
shareholder capital gains and bring the highest possible return. The
wealth maximization strategy generally involves financial investment
decision.
Stockholder wealth maximization is a long-term goal,
since stockholders are interested in the future as well as present
profits. The main aim is to ensure the highest market value of the
entities ordinary shares. Wealth maximization is also known as Value
Maximization.
Reason of choosing wealth maximization:
It can be clearly seen that though all objectives of the firm,
shareholder wealth maximization embodies all objectives of the firm
and while profit maximization and earning per share are for the short
run, shareholder wealth maximization is for the long run. So the wealth
maximization is chosen by the firms as their goal.