The share price of the stocks. Introduction: Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded. In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

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Answer 1

Question

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

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Suppose the compensation committee for a corporation is preparing to hire a new CEO and debating which of two pay packages to offer. Package A includes an annual salary of $1 million plus 1000 shares of stock. Package B also has a salary of $1 million, but has 10,000 options to purchase the company at its current price of $50. a) Draw a graph showing the relationship between the CEO’s total compensation (vertical axis) and the stock price (horizontal axis) for the two pay schemes. Clearly label the two compensation methods in your graph. b) Discuss how a switch from the stock to stock option plan would alter CEO behavior. c) Discuss how a switch from the stock to stock option plan would affect the type of CEO that would be willing to accept the job.

Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers? a. A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock. b. The company changes the way executive stock options are handled, with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period. c. The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash. d. The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company. e. Congress passes a law that severely restricts hostile takeovers.

Answer 2

Question

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

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Answer 3

Question

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

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Answer 4

Question

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

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Answer 5

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

Answer 6

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

Answer 7

Chapter 14, Problem 23P

a.

Summary Introduction

To determine: The share price of the stocks.

Introduction:

Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.

In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity shares and preference shares.

Answer 8

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

Answer 9

b.

Summary Introduction

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC

Solution Summary: The author calculates the share price of the stocks, which is 7.73. The cost of ZE's plan is 77,000,000.

To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.

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Chapter 14 Solutions