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problem: The primary financial objective of corporation is usually taken to be the maximization of shareholder wealth.

Discuss:

i) Ways in which the shareholder of a company can encourage its managers to act in a way which is consistent with the objective of maximization of shareholder wealth.

ii) What other objectives may be important to a public limited company and whether such objectives are consistent with the primary objective of shareholder wealth maximization.

iii) What is the purpose or benefit of published financial statements for companies?

iv) Why the management of working capital is important for a business?

problem: The 5Z Company is selling pens to the local market. It is planning to maximize sales and profit by analyzing few conditions using the break-even analysis formula. Below is the data provided for you to make the decision?

Fixed cost per annum        $70,000
Unit selling Price                $20
Unit Variable cost              $10
Existing Sales                    8,000 units
Relevant range of output  4,000 to 12,000 units

a) What is the output level at which 5Z Company Break even (that is makes neither a profit nor a loss)?

b) How many units must be sold to obtain $30,000 profit?

c) What is the profit that will result from a 10% reduction in variable costs and a $10,000 decrease in fixed costs, assuming that current sales can be maintained?

d) What is the selling price which would have to be charged to show a profit of $40,000 on sales of 8,000 units?

e) What additional sales volume is required to meet $8,000 extra fixed charge from a proposed plant expansion?

problem: Xcell engineering is planning to construct a futsal stadium which has 5 courts to be rented out at any point of time. Its initial cost of investment is RM$280,000. It is expected to generate sales of RM$20,000 per court for year one and a 10% increase for every year from year 2 to year 5. The operating cost for year one for per court is RM$7,000 and it also expected to increase by 10% each year from year 2 to 5. At year 5 it can cease operation by selling the business to Mr. Free for RM$280,000. The cost of capital is 10%. Will you recommend this project to be financed by your company? Use NPV method to show your calculations.

Management Theories, Management Studies

  • Category:- Management Theories
  • Reference No.:- M9140

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