Question

What are the advantages and disadvantages of wealth maximization?

Answer 1

Answer:

Wealth Maximization:

Wealth maximization involves financial management.

Before the entry of wealth maximization, the main aim of business used to be to produce maximum profit.

After the introduction of wealth maximization, financial management is concentrated.

It is even more concentrated than profit maximization.

Answer and Explanation:

Advantages of wealth maximization:

1. Wealth maximization does not depend on profits.

2. It depends on cash flows.

3. Wealth maximization is superior to profit maximization.

4. While giving discounts, it concentrates the risk factor.

Disadvantages of wealth maximization:

1. Wealth maximization is a perspective idea and not a descriptive idea.

2. The objectives of the wealth maximization is not clear.

3. When ownership and management are separated, difficulties arise.

Answer 2

Advantages and disadvantages of wealth maximization

Explanation:

Wealth maximization is a long term goal of maximizing shareholder's wealth by increasing the value of the business conducted by the firm.

Advantages-

• It helps in financial management of the company because without financial management the organization can't gain profit and wealth for shareholder's.
• It helps in developing a strong dividend policy through which shareholder's wealth can be maximized.
• It is a long term concept and hence gives long term benefit to the organization.

Disadvantages-

• the concept of wealth maximization focuses of shareholder's benefit only and hence is not socially desirable.
• the concept of wealth maximization is prescriptive idea.

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advantages and disadvantages of wealth maximization

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