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Research Project Starbucks Assignment

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CORPORATE FINANCE

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Introduction

In the report, it is intended to analyse the fiscal status of Tesla Inc. Tesla Inc is an electric vehicle manufacturing company established in February 2003 in America. It holds year-to-date 55% of the shares in the market. The company raised fresh capital of $1.46 billion by selling 6.8 million new stocks in 2016. The discussion on the different source of finance is done to determine how the company would achieve its objective of increasing the production by $500000 per year until the end of 2018. Different consideration taken by Tesla Inc is discussed to determine the type of sources of finance chosen by the company.

1. Justify the objective of maximising the shareholder wealth and critically evaluate the how different goals help in maximising the wealth.

The objective of Tesla Inc to maximise the wealth of a shareholder is not impracticable. It helps the company in motivating and managing the sustainability of the company with the proper strategy to attain a goal. The attainment of goal by Tesla would benefit the customer and shareholder because it commonly generates capital flow to the company and economies by creating the job opportunity. The firm could not maximise the value by ignoring the stakeholder's interest (Denis et al. 2016, p.467). The implicit statement that could be assumed from the objective of the company is stated below

i) The maximisation of the wealth of the shareholder would help the stakeholder of the company in generating interest. The maximization of the interest of other stakeholders with an increase in the shareholder wealth is the fiduciary objective of the management (2012books.lardbucket.org, 2018).

ii) The maximisation of the wealth of shareholder produces a competition for the company on the long-term basis. Most of the company assume that maximising the shareholder wealth would decrease the value of company production (Ayuso et al. 2014, p.414). Wealth maximization increases the competitive advantage of a company. The company can gain the cost advantage by decreasing their cost of production of goods and services and they can sell their products or services at a lower cost in comparison to their competitors. There are various goals related with different types of business plans such as employee goal, departmental goal, or customer goal. Each goal is specifically used to generate wealth by a company. Motivating an employee helps in increasing production, departmental goal is set for proper management of an operation and customer goal increase the demand of goods and services. Therefore each goal is helpful wealth maximization. 

iii) The price of the stock and continuous update could be observed easily to keep constant update regarding the dividends to be paid to the shareholder.

The different goal setting of the company is to create brand awareness, increase customer, and produce better or competitive goods and service. These goals could be claimed by various companies to generate wealth.

iv)By maximizing the wealth of the shareholders a company can increase the returns of all the owners or the stakeholders of the company by creating new sources of income. The time value of money is considered in wealth maximization as the value of cash inflows in future will not be the same value as in the present time (Ehrhardt and Brigham, 2016, p.56).

vi) Through wealth maximization, a company can easily assess the risks and ambiguities associated with the consideration of the discounting factors. The discounting factors represent both the risks and the time. When the uncertainties get higher than the associated discounting factors will also get increased (Heminway, 2017, p.939).

vii) Through wealth maximization, a company can increase the potential value of the company. They can increase the value of their investments and can create new investments through wealth maximization.

Another goal that could be claimed by Tesla Inc is to produce a sports car, which would highly compete in the market due to its alteration of gas to the electric car (tesla.com, 2018). The company decided to sell its first car at the high price and create finance that would generate capital for the company. With an increase in the capital of the company, the shareholder wealth would increase due to the changes in the dividend. The production of the new car would increase the customer and create wealth which on contrary maximise the shareholder wealth.

2. Explain the different external sources of finance that is available to Tesla Inc

 

The external source of finance that is used by the company is outside which includes the issuance of equity, adopting a partner from new business. In the external source of finance, the bonds are created for long-term obligation and commercial paper is utilised for retrieving debt for short-term (Knack and Xu, 2017, p.215). The various external source of finance are as under:

Debenture- due to the term of paying interest to the holder of a debenture is deducted at the source of tax. The debenture is sold to the public with legislation negotiation. It is the less costly mode to finance the company project.

Trade credit- trade credit is the term used to take credit for the creditor or debtor. It is a short-term capital raising method that helps the company instantly. It also allows the company in delaying the interest payment among business and the supplier. The credit is taken for the purpose of smooth trading and creating the healthy relationships with the supplier and creditor (Hoffman et al. 2015, p.671)

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