Question : Assertion-Reason Questions: Chapter - Sources of Business Finance

Questions : Business Finance and Its Meaning

Assertion: Financial planning aims to maximize shareholder wealth and company value.

Reason: Financial planning does not consider the interests of stakeholders.

Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
    

Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
    

Option 3: Assertion is true, but the reason is false.

 

Option 4: Both assertion and reason are false.

Correct Answer: Both assertion and reason are true, and the reason is the correct explanation of the assertion.

Solution : The correct answer is (a) Both assertion and reason are true, and the reason is the correct explanation of the assertion.

Financial planning is the process of creating a roadmap for how a business will use its financial resources to achieve its goals. One of the most common goals of financial planning is to maximize shareholder wealth and company value. This can be achieved by making sound financial decisions, such as investing in profitable projects, expanding into new markets, and acquiring other companies.

While financial planning may consider the interests of other stakeholders, such as employees, customers, and suppliers, the primary goal is to maximize shareholder wealth and company value. This is because shareholders are the owners of the company, and they have a right to expect that their investment will be profitable.

Overall, financial planning is an essential tool for businesses that want to maximize shareholder wealth and company value. By making sound financial decisions, businesses can invest in new opportunities, grow their businesses, and increase their profitability.