Wealth Maximization Concepts Worksheet Essay Example
Wealth Maximization Concepts Worksheet Essay Example

Wealth Maximization Concepts Worksheet Essay Example

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  • Pages: 4 (841 words)
  • Published: September 28, 2017
  • Type: Case Study
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Reference to Concept in Reading Definitions of Wealth Maximization

Bernard Lester is CEO and founder of Lester Electronics the public Lester Electronics, Inc. which earns $500 million annually. In 1984, Bernard took his company public, and it is now traded on the NASDAQ market and rated Baa by a nationally recognized rating agency. A corporation is owned by shareholders who share the privilege of limited liability and whose liability exposure is usually no greater than their initial investment. A corporation has a continued life and is not dependent on any one shareholder for maintaining its legal existence. A key feature of the corporation is the easy divisibility of the ownership interest by issuing shares of stock Discuss definitions of wealth maximization

The Coporate Firm

The Corporation “Of the many forms of business enterprises, the corporation is


by far the most important.It is a distinct legal entity. As such, a corporation can have a name and enjoy many of the legal powers of natural persons. For example, corporations can acquire and exchange property. Corporations can enter into contracts and may sue and be sued.

For jurisdictional purposes, the corporation is a citizen of its state of incorporation. Starting a corporation is more complicated than starting a proprietorship or partnership. ”

Definitions of Wealth Maximization

John Lin, founder and CEO of Shang-wa Electronics at age 68, John looks orward to spending less time on business and more time with his grandchildren while they are still young. John has never groomed a successor and without one, the business cannot afford for him to slow down. With one son a doctor and the other a commercial architect, John has begun to explore other options that

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might afford him retirement. The sole proprietorship represents single person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs. The Sole Proprietorship “A sole proprietorship is a business owned by one person, and is the cheapest business to form.No formal charter is required, and few government regulations must be satisfied for most industries.

A sole proprietorship pays no corporate income taxes. All profits of the business are taxed as individual income. The sole proprietorship has unlimited liability for business debts and obligations. No distinction is made between personal and business assets.

If Lester loses Shang-wa as a manufacturer, it loses 43 percent of its revenue over the next five years. Lester asked Shang-wa for a capital budget for the joint venture manufacturing facility and Shang-wa’s recent financial statements? Bernard is ready to talk. Bernard will need to know the relationship between today’s dollar today and a possible uncertain dollar in the future before deciding on the merger or partnership. This relationship is called the time-value-of money concept. It is important in capital budgeting, financing arrangements and mergers.

Five years ago, Bernard invited John to sit on the LEI Board of Directors. During his past two visits to the United States for Lester’s quarterly Board meetings, John has informally suggested that Shang-wa is open to growth opportunities that could position the company to meet growing demand. TEC has been discussing global growth opportunities, and Shang-wa is one of the names that came up. Corporate mergers considers external growth strategy and includes profit management, capital budgeting, portfolio considerations, and valuation concepts. Evaluate the metrics of wealth maximization.

Net working capital “Net working capital is

current assets minus current liabilities. Net working capital is positive when current assets are greater than current liabilities. This means the cash that will become available over the next 12 months will be greater than the cash that must be paid out”.

Telephone Call From Peter Zack to Bernard Lester

Managing operating exposure “As the economy becomes increasingly globalized, many firms are engaged in international activities such as exports, cross-border sourcing, joint ventures with foreign partners, and establishing production and sales affiliates abroad. The cash flows of such firms can be quite sensitive to exchange rate changes. The objective of managing operating exposure is to stabilize cash flows in the face of fluctuating exchange rates. Since a firm is exposed to exchange risk mainly through the effect of exchange rate changes on its competitive position, it is important to consider exchange exposure management in the context of the firm’s long-term strategic planning. in making such strategic decisions as choosing where to locate production facilities, where to purchase materials and components, and where to sell products, the firm should consider the currency effect on its overall future cash flows.


  1. Eun & Resnick 2004 p.293) References Block, S. B.; Hirt, G. A.
  2. (2005) Foundations of Financial Management, 11th ed., New York, NY: McGraw-Hill /Irwin. Eun, S. E.
  3. , Resnick, B. B. , (2004), International Financial Management,(3rd ed) New York: McGraw-Hill Ross. S. A. , Randolph, W.
  4. W. , Jaffe, J. , (2005), Corporate finance (7th ed. ).
  5. New York: McGraw- Hill Scenario One: Lester Electronics (2008) MBA540, Week 1, University of Phoenix, retrieved from https://ecampus. phoenix. edu/secure/resource/resource. asp
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