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- Firms often involve themselves in projects that do not result directly in profits. For example, Microsoft corporation donated $10 million to Stanford University hospitals and another $40 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?
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- Firms often involve themselves in projects that do not result directly in profits. For example, Microsoft corporation donated $10 million to Stanford University hospitals and another $40 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not? What is the agency problem, and how might it impact the goal of maximization of shareholder wealth? What is corporate governance? What role does a corporation’s board of directors play in corporate governance? The manager of Golden Ray Corporation receives a bonus if company profits exceed $1,000,000 this year. During the final week of the year, the manager changes an accounting policy that will increase reported profits from $950,000 to $1,025,000, triggering his bonus. The change in profits of $75,000 will reverse itself in the next year, and the accounting change has no impact on…1. Discuss: Firms often involve themselves in projects that do not result directly in profits. For example, Apple donated $50 million to Stanford University hospitals and another $50 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?On the internet and in the news you see many articles on non-profit companies and their contribution rates. For example, let us say that a firm returns 20% of its contributions to research and pays its CEO $700,000 per year. Is this reasonable? How does this compare to other not for profit entities?
- The Lohr Company needs $40 million in cash to expand several of its facilities. Company officials chose to issue bonds to raise this money rather than capital stock. What are some of the possible reasons for this decision?Suppose you are the president of a large corporation located in Seattle, Washington. How do you think the stockholders will react if you decide to increase the proportion of the company’s assets that is financed with debt from 35 percent to 50 percent? In other words, what if the firm used much more debt to finance its assets?A share in pharmaceutical company X is estimated to be worth £200 if the clinical trials for a new painkiller it has developed show no significant side effects and £100 if they do. Assume that the market assigns equal probability to both events, while the company's executives have full knowledge of the trials' results and act to maximize the wealth of existing shareholders. Finally, assume that the company generates sufficient cash flows to meet all its investment needs and carries no debt. Which of the following statements is the most accurate? If the company announces an equity issue, its post announcement share price will jump to a level above £150 If the company announces an equity issue, its post announcement share price will drop to a level below £50 If the company announces an equity issue, its post announcement share price will drop to a level below £150 If the company does not announce an equity issue, its share price will drop to a…
- Lena Kay and Kathy Lauder have a patent on a new line of cosmetics. They need additional capital to market the products, and they plan to incorporate the business. They are considering the capital structure for the corporation. Their primary goal is to raise as much capital as possible without giving up control of the business. Kay and Lauder plan to invest the patent (an intangible asset, which will be transferred to the company’s ownership in lieu of cash) in the company and receive 100,000 shares of the corporation’s common stock. They have been offered $100,000 for the patent, which provides an indication of the fair market value of the patent. The corporation’s plans for a charter include an authorization to issue 5,000 shares of preferred stock and 500,000 shares of $1 par common stock. Kay and Lauder are uncertain about the most desirable features for the preferred stock. Prior to incorporating, they are discussing their plans with two investment groups. The corporation can…In 1970, the great American economist and a Nobel laureate Milton Friedman argued that “the social responsibility of business is to increase its profits”. He wrote that a company has no social responsibility to the public or society, and its only responsibility is to its shareholders. Critically evaluate his statement. Do you agree or disagree? Why?A share in pharmaceutical company X is estimated to be worth £200 if the clinical trials for a new painkiller it has developed show no significant side effects and £100 if they do. Assume that the market assigns equal probability to both events, while the company's executives have full knowledge of the trials' results and act to maximize the wealth of existing shareholders. Finally, assume that the company generates sufficient cash flows to meet all its investment needs and carries no debt. Which of the following statements is the most accurate? A. If the company announces an equity issue, its post announcement share price will jump to a level above £150 B. If the company announces an equity issue, its post announcement share price will drop to a level below £50 C. If the company announces an equity issue, its post announcement share price will drop to a level below £150 D. If the company does not announce an equity issue, its share price will drop to a level below £150
- The President of Ghana launched the COVID-19 business alleviation program in collaboration with the National Board for Small Scale Industries (NBSSI), Trade Associations, and some selected banks. Under the program, the government is givingfunds without interest to selected financial institutions for onward lending to businesses at a 3% interest. The program is aimed at helping beneficiaries to sustain their businesses during the Covid-19 pandemic. Use this information to answer the following question. a.Explain the expected impact of the low-interest rate program on grossdomestic product (GDP), articulating the possible pathways.Robert is the owner of a herring roe farm in Southeast Alaska. He spends $12,000 on a marketing strategy to expand his product in Japan. The initiative results in an additional $23,000 in profits. Robert is happy to see the additional profits, but what ROI should he report to his shareholders?A share in pharmaceutical company X is estimated to be worth £200 if the clinical trials for a new painkiller it has developed show no significant side effects and £100 if they do. Assume that the market assigns equal probability to both events, while the company's executives have full knowledge of the trials' results and act to maximize the wealth of existing shareholders. Finally, assume that the company generates sufficient cash flows to meet all its investment needs and carries no debt.which if the following is most accurate? a.If the company announces an equity issue, its post announcement share price will jump to a level above £150 b.If the company announces an equity issue, its post announcement share price will drop to a level below £50 c.If the company announces an equity issue, its post announcement share price will drop to a level below £150 d.If the company does not announce an equity issue, its share price will drop to a level below £150