managers speak as if the corporation has other goals. For example, they may say that their job is to "maximize profits." That sounds reason- able. After all, don't shareholders want their company to be profitable? But taken literally, profit maximization is not a well-defined corporate objective. Here are three Sometimes you hear reasons: Explain why maximizing market value is the logical financial goal of the corporation.

managers speak as if the corporation has other goals. For example, they may say that their job is to "maximize profits." That sounds reason- able. After all, don't shareholders want their company to be profitable? But taken literally, profit maximization is not a well-defined corporate objective. Here are three Sometimes you hear reasons: Explain why maximizing market value is the logical financial goal of the corporation.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter10: Corporate Governance

Section: Chapter Questions

Problem 5MC

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Similar questions

Is there a good argument against giving long-term shareholders more say in running a corporation? Briefly explain. A. Giving long-term shareholders more influence would give the board of directors too much power. B. Long-term shareholders may place more emphasis on costs rather than generating revenue. OC. Giving long-term shareholders more say could limit the ability of other investors to discipline corporate managers who fail to use profit-maximizing strategies. D. It could be argued that giving long-term shareholders more say could attract too many outside investors.
Which of the following statements is CORRECT? Select one: a. Conflict of interest between shareholders and managers is not possible. b. By definition, the agency problem can only take place in corporations but not in proprietorships and partnerships. c. Conflict of interest between shareholders and bondholders is not possible. d. Managers always work to maximize the long-run value, and therefore the price, of their company stocks. This is exactly what shareholders desire.
Which of the following statements is CORRECT? a. A good goal for a rm's management is maximization of expected EPS. b. Most business in the U.S. is conducted by corporations, and corporations' popularity resultsprimarily from their favorable tax treatment. c. Because most stock ownership is concentrated in the hands of a relatively small segment ofsociety, rms' actions to maximize their stock prices have little benet to society. d. Corporations and partnerships have an advantage over proprietorships because a sole proprietoris exposed to unlimited liability, but the liability of all investors in the other types of businesses ismore limited. e. The potential exists for agency conicts between stockholders and managers. Please explain.
Which of the following statements is CORRECT? a. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. b. Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. c. Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers. d. A good goal for a firm's management is the maximization of expected EPS. e. For a stock to be in equilibrium, its intrinsic value must be greater than the actual market price.
If a company’s board of directors wants management to maximize shareholder wealth, should the CEO’s compensation be set as a fixed dollar amount, or should the compensation depend on how well the firm performs? If it is to be based on performance, how should performance is measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value? Which would be the better performance measure? Why?
Managers of corporations don’t always takeactions that are in the best interest of the corporation’s owners. What are some of those actions, andhow can corporations structure the managementcontract to help control them?
If a company’s board of directors wants management to maximize shareholder’s wealth, should the CEO’s compensation be set as a fixed amount, or should the compensation depend on how well the firm performs? If it is based on performance, how should performance be measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value? Which would be the better performance measure? Why?
The corporation is the most effective form of business organization because the corporation has: Select one: a) easier access to financial capital through selling bonds and stocks b) an unlimited liability toward the stock owners c) the problem of double taxation with respect to the corporate income d) a lot of skilled and semi-skilled labourers e) more freedom of action with respect to management
A company president remarked. “The operations of our company are such that we can take advantage of only a minor amount of financial leverage.” Explain the likely reasoning the company president has in mind to support this statement.
The Stakeholder Capitalism Model * has financial profit as its goal and is often termed impatient capital is the Anglo–American model of corporate governance combines the interests and inputs of shareholders, creditors, management, employees, and society clearly places shareholders as the primary stakeholder.
Maximizing the value of a company is a priority only for public companies, not for privately owned ones. True False
According to your textbook, the financial manager should attempt to maximize the wealth of the firm’s shareholders by achieving the highest possible value for the firm. 1) Please explain how this concept is different from the idea of earning the highest possible profit for the firm; 2) explain how social responsibility and ethical behavior on the part of corporate management affects the value of the firm; 3) discuss the “Agency Theory” and how that relates to the goal of achieving the highest value for the firm.