Wealth Maximization Concepts Worksheet

Wealth maximization concepts worksheet

Concept Application of Concept in the Scenario Reference to Concept in Reading

The corporate firm Bernard Lester founded Lester Electronics Inc, (LEI), which in 1984 was listed publicly and is not traded on the NASDAQ market (University of Phoenix, 2008). The organization is evaluated by a Board of Directors and faced with the pending decisions, the Bernard Lester consults this group where he must consider the interests of its three main stakeholder groups: the Board of Directors; the shareholders; and top management (Ross, et. al., 2005, p. 12). “The goal of the corporation is to add value for stockholders” (Ross, et. al., 2005, p. 14). “The corporate firm will attempt to maximize the shareholder’s wealth by taking actions that increase the current value per share of existing stock of the firm” (Ross, et. al., 2005, p. 14).

Metrics of wealth maximization

In considering the best course of action for all of the organizations involved, each of the decision makers must carefully examine the metrics used to evaluate financial performance and value of the firm. Bernard Lester of Lester Electronics, John Lin of Shang-wa, David Antone of Transnational Electronics (TEC) and other parties are willing to sign non-disclosure agreements to further evaluate and analyze the balance sheets, income statements and cash-flow statements of the organizations to further their actions (University of Phoenix, 2008). The information provided will show valuable information in constructing the appropriate solutions for all parties. Bernard Lester asks his Lester Electronics CFO Anne Lorale to “go ahead and complete the analyses for all options and create a recommendation that I can give to the Board on Monday” (University of Phoenix, 2008). “Accounting statements provide important information about the value of the firm.” (Ross, et. al., 2005, p. 41). “Analysts and managers use financial ratios to summarize the firm’s liquidity, activity, financial leverage, and profitability” (Ross, et. al., 2005, p. 41).

Growth opportunities

One of the potential decisions that Lester Electronics could choose is in “establishing a joint manufacturing facility… [or] seek to acquire Shang-wa outright” (University of Phoenix, 2008). These options would present growth opportunities that would impact the value per share of the organization. In evaluation of its decision, Lester Electronics should consider the price of the share of stock at date 0 and any additional earnings from potentially embarking on the joint venture or acquisition (Ross, et. al., 2005, p. 119). Growth opportunities are “opportunities to invest in profitable projects… these projects can represent a significant fraction of the firm’s value” (Ross, et. al., 2005, p. 119). “The per share value of the project is added to