Problem 4 Part 1 What are means of reducing the conflict of interest between shareholders and managers? Check all that apply: Asking managers to act in the best interest of shareholders Pressure for better management exerted by large investors Better financial data to monitor the company The threat of being fired after a takeover Paying executives with corporate stocks or stock options
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- Tutorial Questions Explain to John, your mentor, the primary goal of the organization? Your manager is requesting you to provide an explanation to the question. Would the role of a financial manager be likely to increase or decrease in importance if the rate of inflation increased? What is the difference between stock price maximization and profit maximization? What are the three principal forms of business organization? What are the advantages and disadvantages of each? What mechanisms exist to influence managers to act in shareholders’ best interests? What is an agency relationship? What agency relationships exist within a corporation? What are financial intermediaries, and what economic functions do they perform? How does an efficient capital market help to reduce the prices of goods and services? What is the term structure of interest rates? What is a yield curve? How should users and savers of…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?Question 19, P1-12 One of the key risk areas that corporates need to manage is "ethical risks." Do you think that management of ethical risks is as important for business as management of financial risks? Explain how ethical problems may affect a firm's profits and stock price.
- 1. The DuPont equation Corporate decision makers and analysts often use a particular technique, called a DuPont analysis, to better understand the factors that drive a company’s financial performance, as reflected by its return on equity (ROE). By using the DuPont equation, which disaggregates the ROE into three components, analysts can see why a company’s ROE may have changed for better or worse and identify particular company strengths and weaknesses. The DuPont Equation A DuPont analysis is conducted using the DuPont equation, which helps to identify and analyze three important factors that drive a company’s ROE. According to the equation, which of the following factors directly affect a company’s ROE? Check all that apply. Efficiency in use of total assets Market-to-book-value ratio Operational efficiency Most investors and analysts in the financial community pay particular attention to a company’s ROE. The ROE can be calculated simply by…The primary goal of corporate financial management should be to _______________. Question 18 options: 1) maximise the number of shareholders 2) minimise the firm’s cost 3) maximise the firm’s profit 4) maximise the share price11. Which of the following security holders receives a lower returns with low risk? . T-Bill B. Common shareholders C. Stakeholders D. Creditors 12. The advantage of a company compared a sole trader as form of business organisation is: A. Quick decision making B. Access to external professional management skills C. Use of own funds D. Inability to access external funds Thank you!!!
- Select the INCORRECT statement: The aim of ensuring good corporate governance is... Select one: 1.Better understand and isolate the causes of market crashes 2.To ensure investor protection 3.To maximise corporate transparency Prevent market disruptions resulting from corporate collapse 4.Prosecute shareholders for allowing high risk business decisions that resulted in corporate collapseWhich 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 quaterThe 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.
- Why is corporate governance important toinvestors? Explain how each of the following isrelated to corporate governance (a) managemententrenchment, (b) hostile takeovers, (c) incentivecompensation plans, (d) greenmail, (e) poison pills,(f) strong boards of directors, (g) vesting periodsfor options, and (h) ESOPs.6) What is the mechanism for mitigating the agency problem? 1.I). Using the firm's stock options for compensation 2.II). Hiring bickering family members as corporate spies 3.III). Boards of directors forcing out underperforming management 4.IV). Security analysts monitoring the firm closely 5.V). Takeover threats A) II and V B) I, III, and IV C) I, III, IV, and V D) III, IV, and V E) I, III, and V Also state justification for the chosen answer.How can accountants reduce bad earnings? Question 8 options: Monitor Managers Improve Disclosure Decrease Disclosure Monitor Investors