Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 1, Problem 6CQ
Summary Introduction
To critically think about: Whether the act of the management is in the interest of the shareholders.
Introduction:
The managers of the firm act in the interest of the shareholders based on the following two factors.
- First factor: The goals of the management are aligned to the shareholders goals.
- Second factor: The replacement of the managers for not pursuing stockholders’ goals is the second factor.
Situation:
Person X owns stock in a company. The present share price is $25. There is an announcement made by another company stating that it needs to purchase Person X’s company. It also says that it will pay $35 per share to obtain all the outstanding stocks. Person X’s management starts fighting for the hostile bid.
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a. How does the offering of stock options to CEOs attempt to align CEO incentives with shareholder incentives?b. Enron was a company that was ruined in part because of the stock options offered to upper management. Explain.c. In addition to accounting reforms, how might stock options be changed to try to prevent situations like what happened at Enron from occurring in the future?
1) "Information asymmetry lies at the heart of the ethical dilemma that managers, stockholders, and
bondholders confront when companies initiate management buyouts or swap debt for equity."
Comment on this statement. What steps might a board of directors take to ensure that the
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of reducing the current quarterly earnings, which may cause the stock price to fall prior to the
announcement of the proposed stock repurchase. What course of action would you recommend to
your CEO? If your CEO came to you first and recommended reducing the current quarter's earnings,
what would be your response?
Hi can you answer the question below please
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