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Wealth_Maximization_Concepts_Worksheet - Wealth...

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Wealth Maximization Concepts Wealth Maximization Concepts Worksheet University of Phoenix 1
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Wealth Maximization Concepts Wealth Maximization Concepts Worksheet Concept Application of Concept in the Scenario Reference to Concept in Reading Future Value and Present Value (Net Present Value) Lester Electronics needs to take into consideration the present value and the future value of whichever company they choose to go with either as partners or mergers. This can be done by calculating the Net Present Value. Doing this will present a huge opportunity for LEI. They will be able to acquire foreknowledge of their potential investments The concept of net present value allows business people to determine whether an investment today will be beneficial for their company tomorrow. According to Ross et al, “we need to know the relationship between a dollar today and a (possibly uncertain) dollar in the future before deciding on the project” (2005, p. 60). This relationship is called the ‘time value of money concept’ and is important in such areas as mergers and acquisitions. This is a justified concept because LEI would want to know the NPV of the company they are acquiring in order to prevent future loss.   Corporate firm As Businesses raise large amounts of money, taking on other forms is normal. In the case of Lester Electronics. (LE), 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 an expanding overseas manufacturing market. 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. According to Ross et al.,
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