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Wealth Maximization Concepts Worksheet
Concept Application of Concept in the Scenario Reference to Concept in Reading
Net Working Capital
The e-mail to John Lin from Bernard Lester disclosed Lester Electronics losing Shang-Wa as a manufacture; Lester electronics can possible lose 43 percent of its revenue within the next five years.
A win- all situations for Lester’s Electronics and Shang-Wa is to evaluate the difference between each firm’s current assets and their current liabilities.
Net working capital give firm the ability to pay its debts. When the firm has positive net working capital the firm is in a better position to pay its short term liabilities. Negative net working capital places the firm in a position whereas obligations to pay short term liabilities is limited and can cause major disruption to the firm such as bankruptcy (Forbes Media, 2008).
Capital Budgeting
Bernard Lester e-mail to CFO Anne Lorale reveals the joint venture capital budget received form John Li that includes the term sheet for Tec/Shang-Wa and Avral/Lester proposed acquit ions.
The win-win solution would be for Anne to evaluate and select the best opposition for the long-term investment that align Lester Electronics goal for maximizing owner’s wealth.
Capital Budgeting help firms decided whether or not to pursuit another firm as a good long-term investment. One way to analysis another firm’s budget is to use view their net present value, internal rate of return, discounted cash flow, and all payback periods (Forbes, 2008).
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