Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 1, Problem 2RQ
Summary Introduction
To discuss: The reasons on whether projects oppose the goal of maximization of shareholder wealth.
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Firms often involve themselves in projects that do not result directly in profits. For example, Microsoft corporation donated $10 million to Stanford University hospitals and another $40 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?
Firms often involve themselves in projects that do not result directly in profits. For example, Microsoft corporation donated $10 million to Stanford University hospitals and another $40 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?
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The manager of Golden Ray Corporation receives a bonus if company profits exceed $1,000,000 this year. During the final week of the year, the manager changes an accounting policy that will increase reported profits from $950,000 to $1,025,000, triggering his bonus. The change in profits of $75,000 will reverse itself in the next year, and the accounting change has no impact on…
7. If all companies only focused on making a profit and increasing shareholdervalue, and not giving to charity, would society be better off? Explain.
Chapter 1 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
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- In 1970, the great American economist and a Nobel laureate Milton Friedman argued that “the social responsibility of business is to increase its profits”. He wrote that a company has no social responsibility to the public or society, and its only responsibility is to its shareholders. Critically evaluate his statement. Do you agree or disagree? Why?arrow_forwardWhat are the concerns about SRI investing in today’s economy? And does the present rating system for ESG give us a fair view of how socially responsible a corporation is?arrow_forwardWhat is meant by the goal of maximization of shareholder wealth? The government has passed regulations that require pollution controls, development restrictions, and pay equity over the years. But, can a firm still achieve the maximization of shareholder wealth? How?arrow_forward
- 1. 1. Consider each of the following points of view and comment on how each point is valid and how each point is flawed: a. Corporations should keep more of their profits (i.e., pay less in tax) because they have a greater ability to use those profits for societal good than the government. b. Corporations cannot be trusted to responsibly use their profits for societal good. The government is better able to distribute those profits in a way that maximizes societal good, so the government should take more (i.e., corporations should pay more in tax) from the corporations Please answer each point or view separately in detail. I would appreciate it.arrow_forwardDiscuss Mark 10:23-25 and its application to capital rationing and maximizing shareholder wealth. Capital rationing could affect the returns to shareholders. An ethical dilemma is faced by the executives of the business. Capital rationing could affect the stakeholders (other than the shareholder) of the business. Should capital constraints modify the principle of maximizing shareholder wealth?arrow_forward1. Explain and provide an example of how a company can generate lots of profits, but still go out of business because they don’t have any cash. 2. How would you state the basic goal of a non-profit firm?arrow_forward
- Financial Institutions are intermediaries that play a vital role in nation-building. They source funds for businesses to engage in projects that are profitable, maximize shareholder wealth, and build communities. What is a project that is worthwhile, has the potential to earn profits, and will benefit the community in the long term? List down those projects and What financial institutions can help you achieve your dream of a sustainable business for your shareholder or community?arrow_forwardDiscuss the topic of maximizing shareholder wealth. This topic has been researched and studied for many years, with mixed results. For example; Irving Fisher, a prominent American Economist, argued that maximizing shareholders wealth should be management’s primary goal. Conversely, Sollars and Tuluca suggested that shareholders should only be rewarded with returns that are commensurate with the risk they take. Explain the advantages and disadvantages of wealth maximization from the perspective of a company’s Chief Financial Officer. Include the effect on company stakeholders – internal (managers, employees) and external (suppliers, shareholders).arrow_forwardDo you agree or disagree, "some companies only use Corporate Social Responsibility for them to gain publicity and profit"? Defend your answer.arrow_forward
- 1. How is hiring the “next generation” of Chinese elites different from practices here in North America. Is it the same as Clinton’s daughter securing a job at a hedge fund company? 2. What are some of the moral principles involves here and what are some of the consequences of this practice? How does any company stay competitive if others choose to conduct unethical business practices?arrow_forwardWhy should maximizing the wealth of our owners be your PRIMARY financial objective as a future Chief Financial Officer of a publicly listed firm, but corporate social responsibility is considered secondary only?arrow_forwardGovernments and not-for-profit organizations have the trait of not being in business to make money. True/Falsearrow_forward
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