Maximization of shareholder wealth as a goal is superior to accounting profit maximization because
A) it considers the time value of the money.
B) following the shareholder wealth maximization goal will ensure high stock prices.
C) accounting profits are not the same as cash flows.
D) A and C.

Question

Quizplus · Accepted Answer

Shareholder wealth maximization considers the time value of money and the difference between accounting profit and cash flows. Accounting profit maximization only focuses on short-term profits and does not consider the time value of money or the difference between accounting profit and cash flows. Following the goal of shareholder wealth maximization will also lead to high stock prices, but this is not the main rationale for why it is a superior goal.

Maximization of Shareholder Wealth as a Goal Is Superior to Accounting