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Wealth Maximization Concepts Worksheet
Concept Application of Concept in the Scenario Reference to Concept in Reading
Corporate Firm
In the scenario, Lester Electronics, Inc. (LEI) 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 dilemma of deciding whether to establish a partnership with Shang-Wa Electronics or become a corporation by acquiring Shang-Wa.
"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" (Jaffe, Ross, Westerfield, 2005, p. 10).
"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" (Jaffe, Ross, Westerfield, 2005, p. 10).
Profitability
Shang-Wa Electronics received an offer from TEC to purchase the company. This company is a key manufacturer for Lester Electronics. If Shang-Wa accepts the proposal from TEC, Lester Electronics will be affected significantly by this takeover. LEI anticipate that the acquisition will cause LEI to lose up to 45% of their expected revenue over the next few years. Due to this situation, LEI is considering the possibility of acquiring Shang-Wa. Analyzing the profitability of Shang-Wa can be useful to TEC in making the appropria ...