Cash-rich firms often make questionable acquisitions, rather than pay out the cash to shareholders. This: Is because diversification is too costly for individuals. Is because diversification eliminates inefficiencies. Is an example of the bootstrap game Is an example of an agency problem
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Cash-rich firms often make questionable acquisitions, rather than pay out the cash to shareholders. This:
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Is because diversification is too costly for individuals. |
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Is because diversification eliminates inefficiencies. |
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Is an example of the bootstrap game |
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Is an example of an agency problem |
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- Firms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could borrow on terms that required immediate repayment if the firm is acquired or it could sell off undervalued assets to make itself a less desirable target. Such tactics are referred to as? Paul works for an investment bank in the corporate finance division. Along with the typical functions in his job role—such as finding a potential target company for a client which would add synergistic value to the client, finding a potential acquirer for a client, developing defensive tactics, establishing a fair value and financing operations—Paul also works with his team in conducting arbitrage operations. Based on your understanding of arbitrage operations complete the following sentence: In recent trade, Paul was assigned to buy 10% of a client’s shares from the open market at $45.50 per share and sell the shares at a price of $46.20 to a private investor, pocketing a return for his firm.…It is generally argued that the takeover constraint deters management from engaging in opportunistic behavior.deters management from considering acquiring other companies.deters management from declaring dividends.deters management from increasing a firm’s level of borrowing.It is generally argued that the takeover constraint : Deters management from engaging in opportunistic behavior. Deters management from considering acquiring other companies. Deters management from declaring dividends. Deters management from increasing a firm’s level of borrowing.
- Which one of the following actions by a financial manager creates an agency problem? Lowering selling prices that will result in increased firm value Agreeing to expand the company at the expense of stockholders' value Borrowing money when doing so creates value for the firm Agreeing to pay management bonuses based on the market value of the firm's stock1. Which of the following statements most appropriately describe how agency cost affect the firms choice structure? Explain. a. When firm owners borrow money they have an incentive to engage in excessive risk taking (that is investing in very risky projects). Since they are managing someone else money.b. When firm have very limited investment opportunities and little debt financing combine with wealth profit that provide them with free cash flow, their management team might squander the firms' earnings on questionable investments. 2. What is the primary weakness of using EBIT-EPS analysis as a financing tool. 3. Why might firms who's sale level change drastically overtime, choose to use debt only sparingly in their capital structure 4. What does the term independence hypothesis means as it applies to capital structure theory 5. Explain how industry norms might be used by the finance manager in the design of the company's financing mix note: if you can provide the source of the info,…The "Discipline of the Market" means that in a competitive market customers and investors deal with firms that behave well, and leave those that do not. They avoid too much risk and flock to firms that pay the best. Then the good actors succeed, and the bad actors go out of business naturally. If the Discipline of the Market apply to financial services, then why do we need regulation and why do we need government restrictions where the free market should apply?
- Suppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?You are concerned about one of the assets in your fully diversified portfolio. You just have an uneasy feeling about the CFO, Ian Malcolm, of that particular firm. You do believe, however, that the firm makes a good product and that it is appropriately priced by the market. Should you be concerned about the effect on your portfolio if Malcolm embezzles a portion of the firm’s cash?The asymmetric information problems that act as a barrier to efficient allocation of capital is referred to as financial friction. When financial friction increases, economic activity declines. A financial crisis occurs when information flows in financial markets experience a large disruption, with the result that financial friction increases sharply and the markets stop functioning, economic activity will collapse. Discuss the dynamics of financial crises in advanced economies.
- Which of the following is/are true regarding payout policy to shareholders? A. Most of the time that firms announce an increase in dividends, the market reacts negatively, as this is an admission that the firm has few good investment opportunities going forward. B. Large, mature firms should return a lot of cash to shareholders because there aren’t enough good investment opportunities out there for them. C. Flexibility is one key reason why we have seen much more use of share repurchases to return cash to shareholders in the last 3 decades. D. The primary value driver for the firm is how cash is paid out, not cash generation. E. (A) and (B) F. (B) and (C) G. (C) and (D)You are concerned about one of the assets in your diversified portfolio. You just have an uneasy feeling about the CFO of that particular firm. You do believe however that the firm makes a good product and that it is appropriately priced by the market. Should you be concerned about the effect on your portfolio if the CFO embezzles a portion of the firm's cash? Discuss based on diversification of assets in a portfolio. Further assume your friend is trying to decide to purchase stock from that same company. She does not hold a diversified portfolio like you do. Based on the relationship between risk and return, will you be willing to pay a higher price for the stock than her? ExplainMany firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?
