Corporate Finance Exercises
Corporate finance chapter 1
Concept questions:
1.Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
2.Not-for-Profit Firm Goals .Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?
3.Goal of the Firm. Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
4. Ethics and Firm Goals. Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fit in this ramework, or are they essentially ignored?Think of some specific scenarios to illustrate your answer.
5. International Firm Goal. Would the goal of maximizing the value of the stock differ for financial management in a foreign country? Why or why not?
6. Agency Problems. Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 share to acquire all the outstanding stock.Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?
7.Agency Problems and Corporate Ownership. Corporate ownership varies around the world.Historically,individual have owned the majority of shares in public corporations in the United States. In Germany and Japan,however,banks, other large financial institutions, and other companies own most of the stock in public corporations. Do you think agency problems are
Concept questions:
1.Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
2.Not-for-Profit Firm Goals .Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?
3.Goal of the Firm. Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
4. Ethics and Firm Goals. Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fit in this ramework, or are they essentially ignored?Think of some specific scenarios to illustrate your answer.
5. International Firm Goal. Would the goal of maximizing the value of the stock differ for financial management in a foreign country? Why or why not?
6. Agency Problems. Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 share to acquire all the outstanding stock.Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?
7.Agency Problems and Corporate Ownership. Corporate ownership varies around the world.Historically,individual have owned the majority of shares in public corporations in the United States. In Germany and Japan,however,banks, other large financial institutions, and other companies own most of the stock in public corporations. Do you think agency problems are