Corporate Finance Exercises

The scope of this paper is to analyze the kind of agency problems that emerges between The Hershey Company and their stakeholders and shareholders. To answer this, a review of the company`s board structure and ownership structure was made. Thereafter two specific situations that has occurred in recent times was used as case examples to enlighten the agency problems suggested to emerge by the corporate structure.

Corporate governance can address agency problems, they are the rules that dictate the company’s behavior towards it’s directors, managers, employees, shareholders, creditors, competitors and community.

Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents:

1.What are conversion factors? Why were conversion factors developed? How do they impact on which bond is cheapest to deliver? Under what conditions would there be no cheapest to deliver? Explain in detail.

According to our text, “Not-for-profit organizations lack a residual ownership claim and the organization’s purpose is something other than to provide goods and services at a profit.” “Because significant resources are provided to governments and not-for-profit organizations, financial reporting by these organizations is important.” (Page 2).

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

The shareholder value or financial perspective includes strategic objectives in areas such as market share, revenues and costs, profitability, and

6. The goal of shareholder wealth maximization model is to maximize the return to shareholders, and it is measured by the value of the firm’s common stock. It is also concerned with minimizing the risk to the shareholders’ bonuses. The model looks at the present value of all expected future cash flows (McGuigan, Moyer, & Harris, 2011, p.8).

Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds

The first section in this chapter discusses the value of perceiving the organizational goals and effectiveness of an organization. The first thing to understand is that every organization imaginable exists for some reason, and those organizations function to achieve some type of goal. These goals are essential to an organization because it helps convey what that organization stands for and the purpose of that organization.

Agency relationship refers to a consensual relationship between two parties, where one person or entity authorizes the other to act on his, her or its behalf, and they exist as mutual agreements between individuals, small firms and large organizations. Managerial opportunism is when managers use employer information for personal gain, this creates a conflict of interest, with self-serving managers making decisions that benefit them rather than the company owners or shareholders. Corporate governance problem deals with

3. Assume that cost of goods sold for a company consists only of variable costs and gross margin is = (revenue – cost of goods sold)/revenue. Which of the following is true

Agency problem is a potential conflict between the agent and shareholders in the interest. It is shown that ownership is separated from management. This cause not only is the divergence of ownership and control, but also the information is asymmetrical. When ownership is separated

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a

(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.