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Date Posted: 20:05:44 08/24/02 Sat
Author: Christopher
Subject: Re: Question # 6 Chapter 1
In reply to: Joe 's message, "Question # 6 Chapter 1" on 14:11:28 08/24/02 Sat

>Can you explain me Question #6.
>Profit maximization is not the same as shareholder
>value maximization. How is it possible that profit
>maximization may not lead to stock price maximization?


I'm not sure that i have this completely correct, but i think it goes something like this...
Profits can be enormous on paper, but (for instance) they could be composed entirely of bad debt, owed by a company named Enron, for example...Thus their profits might be up but anyone who reads the footnotes would not pay the market price for this company, because they would know that the accounts receivable are not worth anything and consequently the stock price is incorrectly valued. So you can maximize profits on paper without addin any real value to the company.

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