a. i. Ways of expressing financial objectives

 Maximizing the wealth of shareholders.

 Profit maximization; and

 Growth in earnings per share (EPS).

ii. Problems with the financial objective of a company

Maximizing the wealth of shareholders

 What should be the period for setting targets for wealth maximization?

 How will the created wealth be measured?

 How to determine the targets for dividend payments and targets for share price growth?

 How to determine the real causes of share price fall seeing that share prices may be affected by general stock market sentiment and not just the company’s performance. Short-term increases or falls in a share price might be caused by investor attitudes rather than any real success or failure of the company itself.

Profit maximization objective

 What should be the period over which profit performance should be measured?

 Profits can be increased by raising and investing more capital. When share capital is increased, total profits might increase due to the bigger investment, but the profit per share might fall.

 Short-term gains may be prioritized over long-term sustainability

 It may lead to cost-cutting or cost reduction, especially in essential areas, harming long-term health

 Long-term investments may be neglected to boost short-term profits which can harm future profitability

 Managers might focus on short-term results to meet annual performance targets

Growth in EPS as a financial objective

 It might be possible to increase EPS through borrowing and debt capital.

 Increased debt can expose shareholders to greater financial risk.

 As a consequence of higher gearing (the ratio of debt capital to total capital), the share price might fall even when EPS increases.

b.

ALTERNATIVE SOLUTION

Net Present Value (NPV) = Total Present Value – Initial investment Initial investment = Total Present Value + NPV Initial investment = ₦755,398 + ₦70,000 Initial investment = ₦825,398