Answer:
- 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 values are taken to arrive at the net present value of any project.
- In an organisation, shareholders typically own the company, but the management of the company rests with the board of directors. Directors are elected by shareholders. Company management procures funds for expansion and diversification of capital markets.
- When a firm follows wealth maximisation goal, it achieves maximisation of market value of share. A firm can practise wealth maximisation goal only when it produces quality goods at low cost.
- Another notable feature of the firms that are committed to the maximisation of wealth is that, to achieve this goal they are forced to render efficient service to their customers with courtesy. This enhances consumer welfare and benefit to the society.
- From the point of evaluation of performance of listed firms, the most remarkable measure is that of performance of the company in the share market. Every corporate action finds its reflection on the market value of shares of the company.