Wealth Maximization Concepts

Wealth Maximization Concepts Worksheet

Wealth Maximization Concepts Worksheet

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

Increased Revenue Avral Electronics has increased their shareholder base and has increased their revenue by tripling their annual revenues from $300 million to $900 million in only five years. Robert Paget is a major reason this has been accomplished due to his aggressive go-getter attitude in negotiation. “Increased revenues may come from marketing gains, strategic benefits, and market power” (Ross, 2004, p. 802).

Horizontal Acquisition David Antone, CEO of Transnational Electronics Corporation (TEC) spoke with John Lin, CEO of Shang-wa Electronics about TEC’s interest of increasing their growth in the global market. Avral Electronics is also aggressively seeking to acquire Lester Electronics. “Merger between two companies producing similar goods or services” (Ross, 2004, p. 898).

Shareholder There are multiple shareholders in the Lester Electronics scenario. Bernard Lester of Lester Electronics, John Lin of Shang-wa Electronics, David Antone of TEC, Robert Paget from Avral Electronics and Peter Zack from Silver Socks Company. These are the major players in the scenario that are shareholders. There are multiple others listed as well as the other potential shareholders not listed. “An individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company's shareholders collectively own that company. Thus, such companies strive to enhance shareholder value” (http://en.wikipedia.org/wiki/Shareholder).“Holder of equity shares. The terms shareholders and stockholders usually refer to owners of common stock in a corporation” (Ross, 2004, p. 898).

Expected return If Lester loses Shang-wa as a manufacturer, they stand to lose 43 percent of their revenue over the nest five years. Lester Electronics sales forecast is a key input to the firm’s financial planning process. Their potential loss of external sales forecasts are based on historical experience, statistical analysis, and consideration of various macroeconomic factors; internal sales forecasts are obtained from internal sources. “Average of possible returns weighted bytheir probability” (Ross, 2004, p. 897). “How do you calculate the average of a probability distribution? As denoted by the above formula, simply take the probability of each possible return outcome and multiply it by the return outcome itself” (www.investopedia.com/terms).

General Partnership John Lin of Shang-wa is interested in forming a partnership with Bernard Lester of Lester Electronics. John explained, “TEC is large enough to go from asking to taking over rather quickly”. He is concerned and wants to make sure Shang-wa is in “good hands” “Form of business organization in which all partners agree to provide some portion of the work and cash and to share profits and losses. Each partner is liable for the debts of the partnership” (Ross, 2004, p. 898).

Exclusive Agreement Shang-Wa Electronics has granted Lester Electronics the exclusive right to sell Shang-wa capacitors