Firms often involve themselves in projects that do not result directly in profits; for example, Maxis and Magnum frequently support public television broadcasts. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?

Answer:

YES

•             It is important for the firm to maximize shareholder wealth and recognize it as a long term goal.

•             Hence, the public profile of a company is important in displaying a positive image in the minds of consumers, legislators and other groups to sustain a business.

•             There may be difficulty to measure the impact on share price directly and the spending on social programs may incur a high cost in the company.

•             But, the goodwill of the company can be formed through the community which can indirectly offer an essential guarantee for the continuation of the firm.

•             Failing to engage in socially responsible programs may cause the company from losing many customers which goes against maximizing shareholder wealth.