EBK FUNDAMENTALS OF CORPORATE FINANCE A
10th Edition
ISBN: 9780100342613
Author: Ross
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 14CRCT
Summary Introduction
To critically think about: The act of the management is in the interest of the shareholders.
Introduction:
The managers of the firm act in the interest of the shareholders based on two factors. The goals of the management are aligned to goals of the shareholders, which is the first factor. The replacement of the managers for not pursuing stockholders goals is the second factor.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Question 3
a) Suppose you own stock in a company. The current price per share is $25. Another
company has just announced that it wants to buy your company and will pay $35 per
share to acquire all the outstanding stock. Your company's management immediately
begins fighting off this hostile bid. Is management acting in the shareholders' best
interests? Why or why not?
b) Briefly discuss principal - agent problems as related to a corporation.
c) What items of good corporate governance serve to mitigate the tension between owners
and managers?
10.
A company would repurchase its own shares for all of the following reasons except if it
a.believes the shares are overvalued.
b.wishes to increase the earnings per share.
c.wishes to prevent unwanted takeover attempts.
d.needs the shares for employee bonuses.
Multiple Choice
Why do companies offer stock for sale?
A) the government forces them to
B) they want to lay off workers
C) they want to give investors a chance to make money
D) the company needs money for growth
Chapter 1 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE A
Ch. 1.1 - What is the capital budgeting decision?Ch. 1.1 - What do you call the specific mixture of long-term...Ch. 1.1 - Prob. 1.1CCQCh. 1.2 - Prob. 1.2ACQCh. 1.2 - Prob. 1.2BCQCh. 1.2 - Prob. 1.2CCQCh. 1.2 - Prob. 1.2DCQCh. 1.3 - Prob. 1.3ACQCh. 1.3 - What are some shortcomings of the goal of profit...Ch. 1.3 - Prob. 1.3CCQ
Ch. 1.4 - Prob. 1.4ACQCh. 1.4 - Prob. 1.4BCQCh. 1.4 - What incentives do managers in large corporations...Ch. 1.5 - Prob. 1.5ACQCh. 1.5 - Prob. 1.5BCQCh. 1.5 - Prob. 1.5CCQCh. 1 - Deciding which fixed assets should be purchased is...Ch. 1 - What form of ownership is easiest to transfer?Ch. 1 - Prob. 1.3CTFCh. 1 - Prob. 1.4CTFCh. 1 - Prob. 1CRCTCh. 1 - Prob. 2CRCTCh. 1 - Prob. 3CRCTCh. 1 - Prob. 4CRCTCh. 1 - Prob. 5CRCTCh. 1 - Prob. 6CRCTCh. 1 - Prob. 7CRCTCh. 1 - Primary versus Secondary Markets [LO3] Youve...Ch. 1 - Auction versus Dealer Markets [LO3] What does it...Ch. 1 - Not-for-Profit Firm Goals [LO2] Suppose you were...Ch. 1 - Goal of the Firm [LO2] Evaluate the following...Ch. 1 - Ethics and Firm Goals [LO2] Can our goal of...Ch. 1 - Prob. 13CRCTCh. 1 - Prob. 14CRCTCh. 1 - Prob. 15CRCTCh. 1 - Prob. 16CRCTCh. 1 - MINICASWE
The McGee Cake Company
In early 2005,...Ch. 1 - Prob. 2MCh. 1 - Prob. 3M
Knowledge Booster
Similar questions
- N2 Part of road show to promote a firm’s IPO is called book building where institutional investors submit their intention to how many shares at what price levels. The investment bank will use this information to determine an offer price such that it can raise most capital. It seems that intentionally submitting lower prices would benefit the institutional investors, however the investment bank does not have to worry about this potential cheating behavior. True Falsearrow_forwardWhich is NOT an IPO puzzle? Huge price spikes in the first couple trading days Underperformance in the long run Extreme IPO market cycles Hiring underwriters to do the jobarrow_forwarda. How does the offering of stock options to CEOs attempt to align CEO incentives with shareholder incentives?b. Enron was a company that was ruined in part because of the stock options offered to upper management. Explain.c. In addition to accounting reforms, how might stock options be changed to try to prevent situations like what happened at Enron from occurring in the future?arrow_forward
- Question 7.14 Page 571. Accounting for stock-based compensation Historically, technology firms have been the most aggressive users of stock-based compensation in the form of stock options granted to almost all employees of the firms. What is the rationale for offering stock options as compensations? Why has this form of compensation been particularly popular with technology firms in the past?arrow_forward3.9 What effect would the following events be likely to have on the price of Google’s stock? a. A competitor launches a search engine that is better than Google’s. b. The corporate income tax is abolished. c. Google’s board of directors becomes dominated by close friends and relatives of its top management. d. The price of wireless Internet connections in developing countries unexpectedly drops, so more and more people world wide use the Internet. e. Google announces a profit of $10 billion, but investors anticipated that Google would earn a profit of $11 billion.arrow_forwardWhich one of the following factors may affect stock return but out of the CEO's control?This chould potentially be a problem when trying up the compensation scheme to stock returns/ A.Supply chain risk management B.Federal monetary policy and regulations C.The rival firm recruits the company's employees D.Tte high inflation rate announced in the last quaterarrow_forward
- Why might a company repurchase its own stock? A) It believes that the market undervalues its shares B) To offset dilutive effects of employee stock options granted C) To recognize an economic gain when the treasury shares are later sold for a profit D) To improve earnings per share by reducing the denominator E) All of the above is it just A and B or is it all of the abovearrow_forward6. IPO price stabilization Which of the following strategies can underwriters use to prevent institutional investors from flipping? Check all that apply. They can require an overallotment clause in the underwriting agreement of the IPO. They can agree to make more shares of future IPOS available to investors that hold on to the initial shares for a relatively long period of time. They can require a lockup clause in the underwriting agreement of the IPO. They can agree to sell the shares in the IPO at a lower price than suggested by their bookbuilding analysis.arrow_forwardWhat are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?arrow_forward
- longer periods? | 7.9 Corporate Ethics Is it unfair or unethical for corporations to create classes of stock with unequal voting rights? 7.10 Voting Rights Some companies, such as Google, have created classes of atook urith littl 11arrow_forwardThe market for corporate control refers to: Question 26 options: how much you have to pay to be appointed CEO. the market price of all a company's outstanding bonds. the market price of all a company's outstanding convertible bonds. the market for blocks of stock large enough to affect or replace management, or to wholly acquire a company.arrow_forwardQ1. (a) You are a stock analyst in charge of valuing high-technology firms, and you are expected to come out with buy-sell recommendations for your clients. You are currently analyzing a firm called etalk.com that specializes in internet-based communication. You are expecting explosive growth in this area. However, the company is not currently profitable even though you believe it will be in the future. Your projections are that the firm will pay no dividends for the next 2 years. Three years from now, you expect the stock to pay its first dividend of $1.50 per share. You expect dividends to increase at a rate of 10 percent per year for two years after that. At that point, the industry will start to mature and growth will slow down; dividends will continue to grow at a rate of 5 percent per year for the foreseeable future.The stock is trading on the Sauder Stock Exchange for $15 per share. If you believe that the required rate of return is 12 percent, what is your estimate of the value…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning