Which of the following statements is incorrect?Group of answer choicesMaximixing accounting profit is not an appropriate goal for financial managers as accounting profit ignores the risk associated with firm’s cashflow.Maximizing the share price is equivalent to choosing projects with relatively high cashflows and relatively low risk.Maximizing the share price is an appropriate goal for financial management as it maximizes the wealth of the owners of the business.Accounting profit may depend on how accounting principles are applied.Maximixing accounting profit is an appropriate goal for financial managers as accounting profit represents cashflow that can be distributed to shareholders, or re-invested in the business.
Question
Which of the following statements is incorrect?Group of answer choicesMaximixing accounting profit is not an appropriate goal for financial managers as accounting profit ignores the risk associated with firm’s cashflow.Maximizing the share price is equivalent to choosing projects with relatively high cashflows and relatively low risk.Maximizing the share price is an appropriate goal for financial management as it maximizes the wealth of the owners of the business.Accounting profit may depend on how accounting principles are applied.Maximixing accounting profit is an appropriate goal for financial managers as accounting profit represents cashflow that can be distributed to shareholders, or re-invested in the business.
Solution
The incorrect statement is: "Maximixing accounting profit is an appropriate goal for financial managers as accounting profit represents cashflow that can be distributed to shareholders, or re-invested in the business."
This statement is incorrect because maximizing accounting profit is not always an appropriate goal for financial managers. Accounting profit does not take into account the opportunity cost of capital and may not accurately reflect the economic profit of the firm. It also does not consider the risk associated with the firm's cash flows. Therefore, focusing solely on maximizing accounting profit could lead to decisions that are not in the best interest of the firm or its shareholders.
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