Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 1, Problem 11PS
Summary Introduction
To discuss: The ways such defenses affect the firm’s agency problems.
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Suppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?
It is generally argued that the takeover constraint deters management from engaging in opportunistic behavior.deters management from considering acquiring other companies.deters management from declaring dividends.deters management from increasing a firm’s level of borrowing.
It is generally argued that the takeover constraint :
Deters management from engaging in opportunistic behavior.
Deters management from considering acquiring other companies.
Deters management from declaring dividends.
Deters management from increasing a firm’s level of borrowing.
Chapter 1 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 1.A - Prob. 1QCh. 1 - Investment and financing decisions Read the...Ch. 1 - Investment and financing decisions Which of the...Ch. 1 - Prob. 3PSCh. 1 - Prob. 4PSCh. 1 - Prob. 5PSCh. 1 - Opportunity cost of capital FH Corp. continues to...Ch. 1 - Corporate goals We can imagine the financial...Ch. 1 - Maximizing shareholder value Ms. Espinoza is...Ch. 1 - Prob. 9PS
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- How does a hostile takeover affect the company’s stakeholder (shareholders, executives, employees, and society in general)? Is it usually beneficial or detrimental to these stakeholders? Why?arrow_forwardIt is an axiom that may be characterized by managers making decisions that conflict with the best interest of the shareholders. a. the risk-return trade-off b. the agency problems c. the curse of competitive markets d. stockholders versus managersarrow_forwardSometimes the management of a target firms fights a take over attempt even when that attempt appears to be in the best interest of the shareholders. Why would management take this stance? I need rush answer thankyouarrow_forward
- Which of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forwardWhich one of the following actions by a financial manager creates an agency problem? Lowering selling prices that will result in increased firm value Agreeing to expand the company at the expense of stockholders' value Borrowing money when doing so creates value for the firm Agreeing to pay management bonuses based on the market value of the firm's stockarrow_forwardReal options reflect the management's ability to adopt and later revise corporate investment decisions. Select one: True False Any strategic transaction can unlock additional values for both parties involved in the transaction, these additional benefits can't be accessed by each party separately. Select one: True False Book values do not mirror actual market values for manufacturing companies, but they may be more accurate for distribution firms. Select one: True False When a company invites other companies to acquire its business, its considered as a friendly acquisition.arrow_forward
- how does the existence market for corporate control affect firm performance?arrow_forwardFirms facing hostile takeovers often take actions to forestall the acquisition. For instance, a firm could borrow on terms that required immediate repayment if the firm is acquired or it could sell off undervalued assets to make itself a less desirable target. Such tactics are referred to as? Paul works for an investment bank in the corporate finance division. Along with the typical functions in his job role—such as finding a potential target company for a client which would add synergistic value to the client, finding a potential acquirer for a client, developing defensive tactics, establishing a fair value and financing operations—Paul also works with his team in conducting arbitrage operations. Based on your understanding of arbitrage operations complete the following sentence: In recent trade, Paul was assigned to buy 10% of a client’s shares from the open market at $45.50 per share and sell the shares at a price of $46.20 to a private investor, pocketing a return for his firm.…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_forward
- Which of the following is an incentive for firms to conduct an IPO? Underwriter and advisor fees are typically substantial. Venture capitalists will be more able to sell their shares. Reporting requirements are more stringent for public companies. The company may become subject to a hostile takeover.arrow_forward2 (a)There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work? (b)There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail? (c)It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?arrow_forwardWhich of the following does not help align managerial and shareholder incentives? Question options: a) Market for Corporate Control b) Product Market Competition c) Antitrust Law d) Corporate Law e) Markets for Directorsarrow_forward
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