Profit Maximization as the Primary Goal

D

Let's analyze each answer choice to determine which statement is correct regarding profit maximization as the primary goal:

A. Profit maximization considers the risk level. This statement is true. When pursuing profit maximization, a company should consider the associated risks. Profits generated by taking on excessive risks may not be sustainable in the long term. Therefore, an optimal approach to profit maximization involves assessing and managing risks to ensure a balance between profitability and risk exposure.

B. Profit maximization will not lead to increasing short-term profits at the expense of lowering expected future profits. This statement is also true. Profit maximization as a primary goal implies seeking long-term profitability rather than focusing solely on short-term gains. While it may be tempting to prioritize immediate profits, a sustainable and successful business must consider the impact of its decisions on future profitability. Therefore, profit maximization should aim for consistent and increasing profits over time, without sacrificing long-term potential.

C. Profit maximization does consider the impact on individual shareholders' EPS. This statement is incorrect. Profit maximization does not necessarily consider the impact on individual shareholders' earnings per share (EPS) directly. The primary objective of profit maximization is to maximize the overall profitability of the company. While individual shareholders' EPS may be affected by profit levels, profit maximization focuses on the company's overall financial performance rather than individual shareholder metrics.

D. Profit maximization is concerned more with maximizing net income than the stock price. This statement is also incorrect. Profit maximization does not prioritize maximizing net income exclusively. While net income is an important aspect of profitability, profit maximization considers various financial indicators, including stock price. The goal is to enhance the company's overall value, which can be reflected in a higher stock price. Profitability and stock price are interrelated factors in achieving the objective of profit maximization.

In summary, the correct statement regarding profit maximization as the primary goal is A. Profit maximization considers the risk level.