Differentiate between profit maximization and wealth maximization.
Calculating Ratios Short Answer
1.What is agency theory? How can setting the appropriate goals for the firm minimize the agency problem?
2.Differentiate between profit maximization and wealth maximization.
3.Why must organizations focus on both shareholder wealth and the stakeholders?
4.Differentiate between the three financial statements with which managers should be familiar. How are they linked?Meacham Corp. wants to issue bonds which can be sold at a market price of $540.27 for each
bond. The bond will have 8 years maturity period. Meacham Corp. common stock currently sells for
$30 per share. Meacham can sell additional shares by incurring flotation costs of $3 per share.
Meacham paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant
rate of 5% per year. Meacham also expects to have $12 million of retained earnings available for use
in capital budgeting projects during the coming year. Meacham’s capital structure is 40% debt and
60% common equity. Meacham’s marginal tax rate is 35%.
a. Calculate the cost of debt before tax and after-tax cost of debt assuming Meacham’s bonds are its
b. Calculate the cost of retained earnings.
c. Calculate the cost of new common stock.
d. Calculate the weighted average cost of capital assuming Meacham’s total capital budget is $30
millionIn the draft business plan that you submitted in Week 8 there were two place holders: the Executive Summary near the top of the paper and the Financial Statements at the very end of the paper (don’t confuse this place holder with your Excel file).
1. Attached is an Executive Summary Format file. The file includes the topics that must be addressed in the Executive Summary. The Executive Summary should be very brief between 1 – 2 pages maximum. Please complete the Executive Summary format. Please remember to be very brief in addressing each topic. Then replace (write over) the Executive Summary place holder near the top of your draft business plan paper with the Executive Summary information you completed in the Executive Summary format file. In the Executive Summary please be sure to address the Financial Projections Return on Investment and the Exit Plan as part of the Executive Summary. PLEASE DO NOT PLACE THESE ITEMS IN THE FINANCIAL STATEMENTS AT THE END OF THE PLAN (I’ve had quite a few students do so in the past).
2. At the end of the draft business plan paper replace the Financial Statements place holder with a narrative summary of the key financial statements which are the Income StatementCashflow and the Balance Sheet. BE SURE TO KEEP THE Financial Statements HEADING but write over the placeholder. PLEASE DO NOT INSERT A TABLE FIGURE OR CHART. Instead just write a very short narrative that highlights the financial statements in such a way that investors or financial institutions would see your business concept as a tremendous opportunity.
Attached is the template draft business plan and financial statement.