Read the following passage and answer the following questions.
A finance manager in an outlet raised ₹3.5 crore through a mix of debt and equity in a ratio of 4 : 3 to open a new outlet, but the actual amount required was ₹3 crore. The aim of the finance manager is to maximize the shareholder's wealth. Keeping this in mind, he reinvested the excess amount of ₹50 lakh in a fixed deposit carrying 6% interest p.a. while the cost of capital is 10% p.a.
"The aim of the finance manager is to maximize the shareholder wealth". It is reflected as an aim of:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Financial Management
Option (1) Financial Management — Correct. The primary aim of financial management is to maximise shareholders’ wealth. The passage says the aim of the finance manager is to maximise the shareholder’s wealth, so it is the aim of financial management.
Option (2) Marketing Management — Incorrect. Marketing management deals with identifying customer needs and selling products. Its aim is customer satisfaction, not the shareholders’ wealth.
Option (3) Financial Leverage — Incorrect. Financial leverage is the use of debt in the capital structure. It is a tool used by the finance manager, not an aim of management.
Option (4) Capital Structure — Incorrect. Capital structure is the mix of owner’s funds and borrowed funds. It is a decision of financial management, not its aim.
NCERT (2026-27 Edition): “The primary aim of financial management is to maximise shareholders’ wealth, which is referred to as the wealth-maximisation concept. The market price of a company’s shares is linked to the three basic financial decisions which you will study a little later. …” |