CA Inter P6 · Chapter 1 · Question 1 of 7
Wealth maximisation is generally regarded as a superior objective of financial management compared with profit maximisation mainly because wealth maximisation:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Considers both the timing and the risk of expected benefits
Explanation
Wealth maximisation measures value as the present value of expected future cash flows discounted at a rate that reflects risk, so it captures both the time value of money and risk. Profit maximisation looks at accounting profit, which ignores timing and risk and is open to different definitions. Wealth is reflected in the market value of shares, not in the statement of profit and loss.
More Scope and Objectives of Financial Management MCQs
- Q3Which of the following is a recognised limitation of profit maximisation as the objective of a company?
- Q4The conflict of interest that can arise when managers, acting as agents, pursue perks and job security rather than maximising the wealth…
- Q5Which of the following is an example of an agency cost borne by shareholders?
- Q6In a large company, the function usually split between the Treasurer and the Controller is best described as:
- Q7Under the modern approach to financial management, the finance manager's role is best described as: