1 Explain the differences between wealth maximization and profit maximization. Explain relation between finance and accounting Differences between wealth maximization and profit maximization Explanation of relation between finance and accounting
Answer: Wealth maximisation vs. profit maximisation
- Wealth maximisation is based on cash flow. It is not based on the accounting profit as in the case of profit maximisation.
- Through the process of discounting, wealth maximisation takes care of the quality of cash flow. Converting uncertain distant cash flow into comparable values at base period facilitates better comparison of projects. The risks that are associated with cash flow are adequately reflected when present
