Wealth Maximization :- It is as well termed as value maximization or Net Present worth maximization. This schema is now universally accepted as an appropriate criterion for making financial decision as it removes all the limitations of profit maximization approach. It is as well known as net present value (NPV) maximization approach. As-per to this approach the worth of an asset is measured in terms of benefits received from it's utilize less the cost of its acquisition. Paybacks are measured in terms of cash flows received from its use rather than accounting profit which was the basis of measurement of benefits in profit maximization approach.

Another significant feature of this approach is that it as well incorporates the time value of money. While calculating the value of future cash flows an allowance is made for time and risk factors by discounting or reducing the cash flows by a certain percentage. This proportion is known as discount rate.

Posted Date: 8/3/2013 3:40:27 AM | Location : United States

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