Explain the term - Timing of Benefits

A more significant technical objection to profit maximisation, as a guide to financial decision making, is that it ignores the differences in time pattern of the benefits received from investment proposals or courses of action. When working out profitability, "the bigger the better" principle is adopted, as decision is based on the total benefits received over the working life of asset, irrespective of when they were received. Consider Tablebelow.

It can be seen from Table that total profits associated with alternatives, Aand B, are identical. If profit maximisation is decision criterion, both alternatives would be ranked equally. Though the returns from both the alternatives differin one significant respect, whereas alternative A provides higher returns in earlier years,returns from alternative B are larger in later years. Therefore, two alternativecourses of "action aren't strictly identical. This is principally because a basic dictumof financial planning is the earlier the better as benefits received sooner are more voluble than benefits' received later.Reason for the superiority of benefits nowover benefits later lies in the fact that former can be reinvested to earn a return.This is mentioned to as time value of money. Profit maximisation criterion doesn'tconsider the distinction between returns received in different time periods and treatsall benefits irrespective of the timing, as equally valuable. This not true in actualpractice as benefits in early years must be valued more highly than equivalent benefitsin later years. Assumption of equal value is inconsistent with real worldsituation.