Wealth Maximization Concept
Wealth Maximization Concepts Worksheet
Wealth Maximization Concepts Worksheet
Concept Application of Concept in the Scenario Reference to Concept in Reading
Metrics of wealth maximization
Although Mr. Lester and Mr. Lin have been in business together for a very long time and have become well acquainted they both realize the importance of studying a company's financial statements before making a business decision. Mr. Lester requested a capital budget and Shang-wa's recent financial statements before discussing the joint venture. "The balance sheet is an accountant's snapshot of the firm's accounting value on a particular date, as though the firm stood momentarily stillÂ…The income statement measures performance over a specific period of time, say, a year" (Ross, 2005).
Financial cash flow
In the scenario each firm provided cash flow statements that will allow the other firms to make informed decisions concerning the value of each firm. "Perhaps the most important item that can be extracted from financial statements is the actual cash flow of the firmÂ…There is an official accounting statement called the statement of cash flows. This statement helps to explain the change in accounting cash and equivalents" (Ross, 2005). "In finance the value of the firm is its ability to generate financial cash flow" (Ross, 2005).
Set-of-contracts viewpoint
Bernard Lester has had one of his employees run the numbers and it has been found that his company will lose more than 40% of its revenues over a 5-year period if they lose Shang-wa. This revelation ahs sparked Lester's interest in a joint venture with Lin. Lester is interested in maintaining and increasing his companies value. "This viewpoint suggests the corporate firm will attempt to maximize the shareholders' wealth by taking actions that increase the current value per share of existing stock of the...
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