Suggest how stockholders' direct engagement with managers and management remuneration may be utilised to guarantee managers operate in the best interests of shareholders by maximising shareholder value.
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a) Suggest how stockholders' direct engagement with managers and management remuneration may be utilised to guarantee managers operate in the best interests of shareholders by maximising shareholder value.
b) Explain the link between the Weighted Average Cost of Capital (WACC) and If you use market values to calculate the WACC and your stock
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- We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might: Make shareholders as wealthy as possible by investing in real assets. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Choose high- or low-risk assets to match shareholders' risk preferences. Help balance shareholders' checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?Shareholders want managers to maximize the (Click to select) dividend expected return financial assets higher lower market value opportunity cost of capital real assets shareholders of their investments. The firm faces a trade-off. Either it can invest its cash in (Click to select) dividend expected return financial assets higher lower market value opportunity cost of capital real assets shareholders or it can give the cash back to (Click to select) dividend expected return financial assets higher lower market value opportunity cost of capital real assets shareholders in the form of a(n) (Click to select) dividend expected return financial assets higher lower market value opportunity cost of capital real assets shareholders and they can invest it in (Click to select) dividend expected return financial assets higher lower market value opportunity cost of capital real assets…Which is the best explanation of how dividends could convey information to investors that could affect the value of a firm? A. Promises to pay dividends limit the ability of managers to accumulate too much cash and to make unwise investments with that cash. B. Investors are skeptical when managers claim that prospects for the firm are bright, but by committing to paying a dividend, managers are adding credibility to their statements about the firm's future. C. Dividends are a more tax efficient way to generate returns for shareholders. D. By paying dividends consistently, investors will come to see dividend payments as less risky than capital gains. Give typing answer with explanation and conclusion
- It is often stated that the ultimate goal of the Finance Manager is tomaximize the current value of the stock of shareholders and not simplymaximizing the profit of the firm. DiscussDiscuss the effects of increasing the leverage of a firm to pay generous dividends to stockholders or to pay and high expenses, advisory and management fees to buyout firmsWhen a firm is deciding how much cash to distribute to stockholders, it should consider two things: (1) The overriding objective is to maximize shareholder value and (2) the firm's cash flows belong to shareholders, so income shouldn't be retained unless management can reinvest those earnings at higher rates of return than shareholders can earn themselves. The (capital budegeting, capital structure, and residual dividend)? model sets the dividend paid equal to net income minus the amount of retained earnings necessary to finance the firm's optimal capital budget. It can be expressed in equation format as: Dividends = Net income - [(Target equity ratio)(Total capital budget)] Because investment opportunities and earnings will vary from year to year, strict adherence to this model would result in fluctuating, unstable dividends. However, investors prefer stable, dependable dividends. Consequently, firms should use this model to help set their long-run target payout ratios, but not as a…
- Which of the following is NOT a way of stating the overriding goal of financial management? Select one: a. Maximising the value of the firm. b. Maximising the wealth of shareholders. c. Maximing the firm's share price. d. Maximising revenue.What effect does financial leverage have on a company's return on equity and its overall valuation? What guiding principles help managers decide on the amount of debt and equity (i.e. the capital structure) they should fund their activities with? Is there an optimal capital structure the firm should target?Firms must provide the right incentives if they are to get -Select-shareholderscreditorsmanagersItem 1 to focus on long-run value maximization. Conflicts exist between managers and stockholders and between stockholders (represented by managers) and -Select-employeesdebtholderscustomersItem 2 . Managers' personal goals may compete with shareholder wealth maximization. However, managers can be motivated to act in their stockholders' best interests through (1) reasonable -Select-vacationcompensationperquisiteItem 3 packages, (2) firing of underperforming managers, and (3) the threat of hostile takeovers. If a firm's stock is undervalued, corporate raiders will see it as a bargain and will attempt to capture the firm in a hostile takeover.-Select-StockholdersBondholdersItem 4 generally receive fixed payments regardless of how well the firm does, while -Select-stockholdersbondholdersItem 5 earn higher returns when the firm's earnings are higher. Investments in -Select-riskysafeItem…
- Executive salaries have been shown to be more closely correlated to the size of the firm thanto its profitability. If a firm’s board of directors is controlled by management rather than outside directors, this might result in the firm’s retaining more earnings than can be justifiedfrom the stockholders’ point of view. Discuss those statements, being sure (1) to discussthe interrelationships among cost of capital, investment opportunities, and new investmentand (2) to explain the implied relationship between dividend policy and stock prices.The cost of capital is affected by some factors that are under the firm’s control and some that are not. What are the factors the firm can and cannot control and what will be the impact of these factors on companies average cost of capital (WACC)? What factors determine the beta of a stock? Define and describe each.Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset Selection
