Construction Management Essay

a.(1)Stanleys focus is on maximizing additions. This is the adapt stopping point because the end of any degraded, and therefore its financial manager, should be to maximize its value and by extensionthe wealthiness of the stockholders.(2)There is electric potential for an office staff problem if Stanley decides to go ahead and pull in the computer software developer. This investment will cause a temporary decline in the pelf per partake (EPS) of the firm which will mean few earnings at the present time for thestakeholders. This may be a problem if the goal of the shareholders is to gain moneysooner than later. However, it the goal of the shareholders is simply to maximize wealth,there may non be an dresser problem since the goal of the financial manager, Stanley, is the homogeneous as the shareholders.b. Since there is no preferred telephone circuit Earnings motional for common stockholders= Net Profit After Taxes No of shares of common stock outstanding = 50 000EP S = NPAT/ no. of shares of common stock outstandingEPS presentation a steady increase over the past five days indicating that Stanley is achieving hisgoal of maximizing cyberspace.c. OperatingCash Flow(OCF) for 2012OCF = Earnings Before enkindle and Taxes(1 Tax rate) + Depreciation OCF = EBIT (1 T) + Depreciation= $89 000 (1 0.20) + $11 000= $82 two hundredFree Cash Flow (FCF) for 2012FCF = OCF1 Net Fixed Assets Investments Net veritable Assets Investment FCF = OCF NFAI NCAINFAI = Change in net fixed assets + Depreciation= ($132 000 $128 000) + $11000 = $15 000NCAI = Chance in current assets Change in (Accounts Payable + Accruals) = ($421 000 $62 000) ($136 000 + $27 000) ($126 000 + $25 000)=$47 000 FCF = $82 200 $15 000 $47 000= $20 200Both the operating gold flow and the dispatch cash flow are positive indicating that Stanley wasable to generate adequate cash flow to cover both operating expenses and investments inassets. There was also $20 200 left over to pa y to investors.a.(1) Upon what financial goal does Stanley expect to be focusing? Is it the correct goal? Why or wherefore not? Stanley seems to be focusing on earn maximization, in another(prenominal) word the EPS performance. It is not the correct goal, as profits do not necessarily result in cash flows available to the stockholders, only when earnings increases are accompanied by increased future cash flows would a higher stock price be expected, therefore the stockholders wealth would be maximized.(2) Could a potential agency problem exist in this firm? Explain. There is a potential agency problem exist in this firm. First of all, he owns only 40% of the firm, besides he manages actively all aspects of its activities and the other stockholders are not active in perplexity of the firm, so he is an agent of the other owners. Secondly he is antipathetic to take more than moderate risk, which might jeopardize his goal of profit maximization and reduce his personal wealth, so there is a fight between owner wealth maximization and his personal goals.Scri Bd(a)Upon what financial goal does Stanley seem to be focusing? Is it the correct goal? Why or Why not? The financial goal that Stanley seems to be focusing on is maximizing the profitability of Track Software Inc. which is apparent in geezerhood 1997 to 2003 increases in net profit from ($50,000) to $48,000 respectively. His financial goal of profit maximization was also evident in his hesitance to hire a software developer because this would result in a salary cash outflow of $80,000 per year and lower the Earnings Per Share(EPS) in years to come.Par(1)Stanley is focusing on maximizing profit, as shown by the increase in net profits over theperiod1997 to 2003. His dilemma about adding the software designer, which would depress earnings for the costly term, also demonstrates his emphasis on this goal .Maximizing wealth should be the correct goal for a financial manager. Wealth maximization takes a l ong perspective and also considers risk and cash flows .Profits maximization does not integrate these three factors (cash flow, timing, risk) in the decision process(2) An agency problem exists when managers habitation personal goals ahead of corporate goals. Since Stanley owns 40% of the outstanding equity, it is unlikely that an agency problem would arise at Track SoftwareA.Maximization of shareholder wealth, which means maximization of share price,should be theprimary goal of the firm. Unlike profit maximization, this goalconsiders timing, cash flows, andrisk. It also reflects the worth of the ownersinvestment in the firm at any time. It is the value theycan realize should theydecide to sell their shares.B.Yes, there appears to be an agency problem. Although compensation for management is tied toprofits, it is not directly linked to share price. In addition,managements actions with regard topollution controls suggest a profitmaximization focus, which would maximize their ea rnings,rather than an attemptto maximize share priceEco Plastics Company ECO PlasticsEstablished in 2000, ECO Plastics Ltd is the UKs ahead(p) and highest case plastic bottle recycler producing plastics for soft drinks and milk bottles.ChallengeIn March 2011, the company signed a ten-year joint conjecture deal, a first in the UK drinks manufacturing industry, to supply the global enterprise with high quality food-grade recycled material (rPET). In order to achieve Coca-Colas target of including 25% rPET in all plastic packaging within Great Britain by 2012, ECO Plastics needed to puff up their premises. Jonathan Short, Managing Director of ECO Plastics Ltd said, We were thrilled to sign the joint venture deal with a company of the calibre of Coca-Cola and begin the next heavy step for our business organization. All we needed to do was secure the additional swell required to expand our premises and fund our operations.SolutionECO Plastics approached a bout of pay providers b ut found that due to the economic climate, lending was restricted. It was rugged at first to find the financial backing we needed to expand our business and meet the needs of our exciting venture with Coca-Cola, said Mr. Short. We approached crocked Brothers and discussed a structured finance solution, tailored to meet our specific business requirements. The deal was primarily a leasing contract, secured against our existing assets which incorporated invoice finance to fund our operations during the expansion.ResultThe combined asset-based financial platform of 18million provided by Close Brothers Invoice Finance and Close Brothers Leasing supported the construction and operation of the expansion to ECO Plastics processing plant, which completed in 2012. Without Close Brothers, we would have been futile to fulfil our agreement with Coca-Cola which would have not only been devastating to our business, but to the industry as a whole, said Mr. Short. Working with Close Brothers has afforded us with the opportunity to expand our business and realise our true growth potential as we continue to work toward becoming the world-leader in sustainable packaging.