Chapter 14 Questions 1. A principal-agent relationship is a relationship where an agent makes decisions that affect the principal. Examples of explicit principal-agent relationships are the relationships between a client and a lawyer and between an investor and a money manager. Examples of implicit principal-agent relationships are an employee acting on behalf of its employer and a consumer making decisions‚ such as copying and selling a product‚ that can affect a manufacturer. 2. The
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Midland Energy Resource Case Study Introduction Midland Energy Resources is a fairly successful global energy company which had been incorporated more than 120 years previously and in 2007 had more than 80‚000 employees. It has three main operations‚ oil and gas exploration and production (E&P)‚ refining and marketing (R&M)‚ and petrochemicals. E&P is the most profitable segment of Midland and its net margin over the previous five years was among the highest in the industry. Its largest division
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ACF 214-FINANCE PROJECT Group Leader-Mr. Ajay Yadav Company- Larsen and Toubro (L&T) Individual Coursework Date-21/03/12 \ By‚ Shashank Bahadur Shah Section-A‚ 100172‚ BBA 2yr (2010-2013) INDEX 1) Introduction 2)
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Principal –agent conflict arise because managers & shareholders view the role of the corporation differently. Investors see corporation as investment vehicles. Shareholders want corporate managers to work diligently and efficiently towards the simple goal of maximizing the value of their ownership stake. However‚ the relationship between the managers of a corporation and its owners is complex. The principle of self-interested behavior tells that people‚ including managers and stockholders‚ work
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CHAPTER 15 INVESTMENT‚ TIME‚ AND CAPITAL MARKETS TEACHING NOTES The primary focus of this chapter is on how firms make capital investment decisions‚ though the chapter also includes some topical applications of the net present value criterion. The key sections to cover are 15.1‚ 15.2‚ and 15.4‚ which cover stocks and flows‚ present discounted value‚ and the net present value criterion respectively. You can then pick and choose between the remaining sections depending on your time constraint and
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underlying assumptions of MV and CAPM approaches The total risk with a security has two elements. The first element of risk relates to events that affect individual securities alone‚ this element of risk is commonly referred to as unsystematic (or diversifiable) risk (Frino et al‚ 2013). This does not influence all securities and can be diversified away. The second element of total risk is related to macroeconomic events that affect the prices of all securities and are reflected in broad market movements
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analyzing the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Price/Earnings Multiple method. 1. The Capital Asset Pricing Model (CAPM) illustrates the relationship between expected return of the market and the non diversifiable risk. The CAPM is used to determine the required rate of return for Coca Cola stock. 2. The Dividend Discount Model (DDM) shows the value of a firm’s present value of expected future dividends. In other words‚ the future dividends are discounted
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Summary of Apple’s Latest Launch: iFinance According to the article on the newspaper of Barron’s‚ “Apple’s Latest Launch: iFinance‚” written by Randall W. Frosyth on February 10‚ 2014‚ once computer technology leading enterprise--Apple company not only has produced many unimaginable and wonderful computerized gadgets‚ such as iPod‚ iPad‚ and iPhone for the modern society‚ but also has extended its energetic innovation to the finance world. Based on the article‚ recently Apple’s products have
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TUTORIAL EXERCISE WEEK 24 INTERNATIONAL COST OF CAPITAL AND CAPITAL STRUCTURE 1. By investing in the form of debt rather than equity‚ companies may be able to reduce their taxes (because principal repayments are treated as a return of capital and are not taxed) and to avoid currency controls (because governments are more reluctant to block loan repayments‚ than dividend payments). 2. Use the interest rate parity: One year forward rate: £1*1.13 = $2*1.10 ⇨ £1 = $1.9469‚ which is 2.65%
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CAPM vs. APT Asset Pricing Model are very useful tools that enable financial annalists or just simply independent investors evaluate the risk in an specific investment and at the same time set a specific rate of return with respect the amount of risk of an individual investment or a portfolio. The CAPM method while simpler than the ATP method takes into consideration the factor of time and does not get too wrapped up over the Systematic risk factors that sometimes we can not control. In this paper
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