Wealth Maximization Concepts Worksheet

Wealth Maximization Concepts Worksheet

Beverly Mann

University of Phoenix

MBA 540/ Tim Randolph

January 8, 2006

Wealth Maximization Concepts Worksheet

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

Corporate firm

As Businesses go about the task of raising large amounts of money, taking on other forms is normal. “The firm is a way of organizing the economic activity of many individuals, and there are many reasons why so much economic activity is carried out by firms and not by individuals. The theory of firms, however, does not tell us much about why most large firms are corporations rather than any of the other legal forms that firms can assume”, (Ross-Westerfield-Jaffe, 2004). In the case of Lester Electronics, Inc. (LEI), the company started out in the 1920’s as a small family business owned by Bernard Sr. The business was sold in the 1970’s due to encroaching overseas manufacturers. In 1978, the business was acquired by Bernard Jr. and again become a sole proprietorship.

Currently, the company is faced with a decision that will change the legal form of LEI. Either, LEI will establish a partnership with Shang-Wa Electronics or become a corporation by acquiring Shang-Wa.

“The Corporate firm is a way of organizing the economic activity of many individuals. There are three basic legal forms of organizing firms; sole proprietorship, partnership and corporation. The task of raising large amounts of money is the main purpose under each form,” (Ross-Westerfield-Jaffe: Corporate Finance, 7th Ed.,).

The balance sheet is an accountant’s snapshot of the firm’s accounting value on a particular date.

The Larry Parker Business Center at Grace Hill (GH) provides seminars for business development to at-risk or underserved women in the neighboring communities of Saint Louis, Missouri. One of the key factors of the seminar is the remove the fear of reading and analyzing a balance sheet. “The balance sheet has two sides: On the

left are the assets and on the right are the liabilities and stockholders’ equity. The balance sheet states what the firm owns and how it is financed,” (Ross-Westerfield-Jaffe: Corporate Finance, 7th edition).

When preparing a balance sheet participants are told to list items showing the book value of property owned. To make this process simple yet creative, GH uses software programs by Corporatelawforms.com and Betterinvesting.org. The kits provide the background and guidelines for understanding basic accounting and bookkeeping principles, especially a balance sheet. Participants learn that in order to obtain investors it is important to maintain up-to-date and accurate statements. As a result, several participants have formed successful neighboring businesses and are teaching the existing classes.

“A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements”, (www.investopedia.com/articles/04/031004.asp).

http://www.corporatelawforms.com/

http://www.betterinvesting.org/articles/web/5015

http://www.gracehill.org/wbc/index.htm

“If the balance sheet is like a snapshot, the income statement is like a video recording of what the people did between two snapshots, “ (Ross-Westerfield-Jaffe: Corporate Finance, 7th Ed.,).

The income statement shows the bottom line over a specific period, say, a year.

As Assistant to the Director of Community Development , my assignment involves interacting with Board Members, and the entire Executive Team, especially the Financial Manager and the CFO. I am responsible for allocating expenditures using appropriate fund sources. In a nonprofit organization, allocation of funds is crucial.

For example, during our last coordinator’s meeting the financial manager presented an income statement to demonstrate the success of the funds received from a grant to plant native plants on the Riverfront Trail. The income statement allowed members to review in details the revenues, costs, expenses, losses, and profits for the project. In the nonprofit industry, income statements are an essential