Chapter 1, Problem 30QA

With a decline in the number of publicly traded companies and the growth of other investment vehicles such as private equities, hedge funds, junk bonds, etc., some people claim that the investment world is becoming more and more unfair towards smaller investors since most of the alternative investment vehicles are only available to institutions or high-net-worth individuals. Do you agree or disagree with this claim?

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?

Discuss the topic of maximizing shareholder wealth. This topic has been researched and studied for many years, with mixed results. For example; Irving Fisher, a prominent American Economist, argued that maximizing shareholders wealth should be management’s primary goal. Conversely, Sollars and Tuluca suggested that shareholders should only be rewarded with returns that are commensurate with the risk they take. Explain the advantages and disadvantages of wealth maximization from the perspective of a company’s Chief Financial Officer. Include the effect on company stakeholders – internal (managers, employees) and external (suppliers, shareholders).

All the following statements are incorrect about international equity markets except? a. In the international equity market, corporations cannot raise capital through IPOs, instead they can raise capital by trading in the secondary market. b. In the international equity market, corporations can easily manipulate the price of the shares since it is not regulated by any regulatory bodies. c. In the international equity market, corporations can only sell blocks of shares to Institutional investors from European Union. d. In the international equity market, corporations can sell blocks of shares to investors in a number of different countries simultaneously.

Which of the following does not apply to secondary markets? Group of answer choices Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others. Transactions help to establish market prices for additional shares that may be issued in the future. Transactions are important to the efficient allocation of resources in our economy. New resources are provided when shares of stock are sold by the corporation to the initial owners.

What is the important question of corporate finance when a finance manager advises the company’s management to accept or reject a long-term investment project? What the finance manager needs to analyse to justify her/his adviceHow a corporation is different from a partnership in terms of owner, legal status, liabilities, life, regulation, access to capital, taxation and transfer?

Because corporations do not actually raise any funds in secondary markets, they are less important to the economy than primary markets.”

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 false? a. Dual-class stock is more prevalent in the United States than it is in other countries. b. When a corporation has dual-class stock, the corporate insiders generally concentrate their holdings in the superior voting-share class, while ordinary investors tend to hold relatively more of the inferior voting-class stock. c. One purpose of a dual-class structure is to allow insiders to raise the capital needed to finance growth without losing voting control. d. All of the above statements are false. e. Only statements (a) and (b) are false.