Corporate Finance, Student Value Edition Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition)
Corporate Finance, Student Value Edition Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition)
4th Edition
ISBN: 9780134426792
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 28, Problem 11P
Summary Introduction

To assess whether the CEO would be better off or worse off, given that he owns 3% of GF and is considering an acquisition. Post acquisition, the market capitalization of GF would suffer a loss of $50 million and the present value of CEO’s compensation would increase by $5 million.

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You are invested in GreenFrame, Inc. The CEO owns 3% of GreenFrame and is considering an acquisition. If the acquisition destroys $60 million of GreenFrame's value, but the present value of the CEO's compensation increases by $6.5 million, will he be better or worse off? The CEO will be ____because his wealth has changed by $ million.
You're a CEO and you currently own 0.5% of a $1 billion company. You are consideringhaving the firm take a project that you personally enjoy as much as you would enjoy$100,000 in wealth. The project does not affect your salary or your future careerprospects. The project costs $200 million and pays $300 million in one year with 20%probability, $150 million with 60% probability, and $0 with 20% probability. What is the minimum ownership at which the CEO won’t be motivated to take thisproject?
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