MANAGEMENT

Detailed explanation-1: -Time value of money is ignored: The formula is based on the idea that the higher the profit, the better the proposal, but what about its timing? In finance, when considering present value, we know that cash now won’t have the same value in the future.

Detailed explanation-2: -It ignores the time value of money:Profit maximization does not consider the time value of money or the net present value of the cash inflow. It leads certain differences between the actual cash inflow and net present cash flow during a particular period.

Detailed explanation-3: -The profit maximizing firm ignores the timing of the return. It equates money received today with money received in the future; this is because money received in today may be re-invested to earn more profit. The profit earn from an investment may have negative relationship with the risk and return of that investment.

Detailed explanation-4: -Profit maximization objective ignores the time value of money and does not consider the magnitude and timing of earnings. It treats all earnings as equal when they occur in different periods. It does not differentiate between the profits of the current year with the profits to be earned in later years.

Detailed explanation-5: -The process of increasing the profit earning capability of the company is referred to as Profit Maximization. It is mainly a short-term goal and is primarily restricted to the accounting analysis of the financial year. It ignores the risk and avoids the time value of money.