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Hi tutor, just like to confirm with you on something.
QN: Ways in which directors of a company can be encouraged to achieve the objective of maximization of shareholder’s wealth.
model answer: Through corporate governance and managerial reward schemes.
My answer:
1) By investing in projects with positive NPV as it would result to an increase in shareholder’s wealth equal to the amount of NPV gained
2) (traditional view) By funding investment through means of debt finance, as it would bring the WACC to a minimum, and thus increasing the market value and shareholder wealth.My answers would be wrong, right?
Looking forward to your reply, thanks!Your answer would be wrong.
Investing in project with a positive NPV will help achieve the objective, but that is not what the question asked.
The questions asked in which way the directors could be encouraged to achieve the objectives.
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