Which one of the following is a criticism of equating the goals of maximising the ROE of a company and maximising the company's shareholder wealth?
A) ROE is based on after-tax earnings, not cash flows.
B) ROE does not consider risk.
C) ROE ignores the size of the initial investment as well as future cash flows.
D) All of the above are criticisms of ROE as a goal.

Question

Quizplus · Accepted Answer

All of the given options are valid criticisms of the goal of maximizing ROE as a measure of a company's success. ROE only takes into account after-tax earnings and does not consider risk or future cash flows. Ignoring these important factors can lead to a narrow focus on short-term gains at the expense of long-term sustainability and shareholder wealth.

Which One of the Following Is a Criticism of Equating