Worth Maximisation is preferred over profit Maximisation (comment on it)
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Answer:
Profit maximization ignores risk and uncertainty. Unlike Wealth Maximization, which considers both. Profit maximization is a short term objective of the firm whereas the long-term objective is money maximization. Profit maximization avoids the time value of money, but Wealth Maximization recognizes it.
The question is wrong, correct question is :
Wealth Maximisation is preferred over profit Maximisation (comment on it)
Wealth maximisation is a financial management system in which wealth is maximised. Wealth maximisation is a modern concept. The sole purpose of coming into existence is to do business and financial management for wealth maximisation. This is considered superior to profit maximisation because it is done keeping in mind a wider area.
The wealth or value of a business is defined as the capital market value as directed by the shareholders. This implies that the wealth of the shareholder is maximised. The wealth of any shareholder will be maximum only when the net worth of the company is high.
Wealth maximisation is preferred over profit maximization because maximising wealth is based on the cash effect in an organisation. Whereas profit maximisation is based on the increase in sales and accounting profit of the organisation.
Wealth maximisation considers the time value of money, but profit maximisation ignores the time value of money.
The main objective of wealth maximisation is to produce quality products at a low cost, whereas profit maximization does not aim at maintaining the optimum quality of the product.
For these reasons, wealth maximisation is preferred over profit maximisation.
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