Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 17, Problem 9CTCR
Agency Issues. It is sometimes argued that excess cash held by a firm can aggravate agency problems (discussed in Chapter 1) and, more generally, reduce incentives for shareholder wealth maximization. How would you frame the issue here?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Discuss the factors that are likely to influence the desired level of cash of a company
Outline the advantages and disadvantages of using short term debt, as opposed to long term debt, in the financing of working capital
Why cash flows rather than profits are most desirable in financial management? Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditors
Discuss the factors that are likely to influence the desired level of cash of a companyb. Outline the advantages and disadvantages of using short term debt, as opposed to longterm debt, in the financing of working capital c. Why cash flows rather than profits are most desirable in financial management? d. Explain the term “agency relationships” and discuss the conflicts that might exist in therelationship between’i) Shareholder and managersii) Shareholders and creditorsWhat steps may be taken to overcome these conflicts?
Finance experts contend that the ultimate goal of a firm should be maximization of shareholder wealth. On the other hand, managers tend to pursue different goals. Discuss the concept of shareholder wealth maximization, the goals of management and the reasons for the goal differences.
Chapter 17 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 17.1 - Prob. 17.1ACQCh. 17.1 - Prob. 17.1BCQCh. 17.1 - Prob. 17.1CCQCh. 17.1 - Prob. 17.1DCQCh. 17.2 - Prob. 17.2ACQCh. 17.2 - Prob. 17.2BCQCh. 17.2 - Prob. 17.2CCQCh. 17.2 - Prob. 17.2DCQCh. 17.3 - Prob. 17.3ACQCh. 17.3 - Prob. 17.3BCQ
Ch. 17.3 - Prob. 17.3CCQCh. 17.4 - Prob. 17.4ACQCh. 17.4 - Prob. 17.4BCQCh. 17.4 - Prob. 17.4CCQCh. 17.5 - Prob. 17.5ACQCh. 17.5 - Prob. 17.5BCQCh. 17 - If a firm receives a check for 50,000, its...Ch. 17 - Prob. 17.2CCh. 17 - Prob. 17.3CCh. 17 - What are shortage costs?Ch. 17 - Prob. 17.5CCh. 17 - Prob. 1CTCRCh. 17 - Cash Management. What options are available to a...Ch. 17 - LO1 17.3Agency Issues. Are stockholders and...Ch. 17 - Prob. 4CTCRCh. 17 - Short-Term Investments. Why is a preferred stock...Ch. 17 - Prob. 6CTCRCh. 17 - Float. Suppose a firm has a book balance of 2...Ch. 17 - Prob. 8CTCRCh. 17 - Agency Issues. It is sometimes argued that excess...Ch. 17 - Use of Excess Cash. One option a firm usually has...Ch. 17 - Use of Excess Cash. Another option usually...Ch. 17 - Float. An unfortunately common practice goes like...Ch. 17 - Credit Instruments. Describe each of the...Ch. 17 - Trade Credit Forms. In what form is trade credit...Ch. 17 - Receivables Costs. What are the costs associated...Ch. 17 - Prob. 16CTCRCh. 17 - Credit Period Length. What are some of the factors...Ch. 17 - Credit Period Length. In each of the following...Ch. 17 - Prob. 19CTCRCh. 17 - Prob. 20CTCRCh. 17 - Calculating Float. You have 95,000 on deposit with...Ch. 17 - Prob. 2QPCh. 17 - Calculating Float. You have 26,500 on deposit with...Ch. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Calculating Net Float. Each business day, on...Ch. 17 - Size of Accounts Receivable. Essence of Skunk...Ch. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Size of Accounts Receivable. Two Doors Down, Inc.,...Ch. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Prob. 13QPCh. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Safety Stocks and Order Points. Sach, Inc.,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Why is understanding the relationship between the cash conversion cycle (CCC) and net working capital important to the contemporary business executive? Explain ways in which executive decisions regarding the CCC and net working capital can affect a company both adversely and beneficially. Support your response with a specific example from the business world.arrow_forwardWhen 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…arrow_forwardIt has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is “expected” to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization.arrow_forward
- Why do you think that wealth maximization is an appropriate goal of the firm? Does it lead to maximization of the wealth of shareholders? Does an attempt by the management to maximize value ofthe firm benefit the society? Explain.arrow_forwardCash-rich firms often make questionable acquisitions, rather than pay out the cash to shareholders. This: Is because diversification is too costly for individuals. Is because diversification eliminates inefficiencies. Is an example of the bootstrap game Is an example of an agency problemarrow_forwardExplain and evaluate how the primary of objective in financial management of maximizing shareholder wealth is at conflict with other objectives such as ensuring favorable outcomes for (Note if your organization is public sector consider the alternative objective of minimizing the net cost to the government)arrow_forward
- 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 conclusionarrow_forwardWe 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?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
What is Corporate social responsibility (#CSR) ?; Author: Servier International;https://www.youtube.com/watch?v=1bpf_sHebLI;License: Standard Youtube License