Merits of wealth maximization approach, Financial Management

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Q. Merits of Wealth Maximization Approach?

Merits of Wealth Maximization Approach:-

The wealth maximization schema is superior to the profit maximization approach because:

1. Wealth maximization approach utilizes cash flows instead of accounting profits which avoids the ambiguity regarding the exact meaning of the term profit.

2. Wealth maximization approach gives due significance to the time value of money by reducing the future cash flows by an appropriate discount or interest rate.

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