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
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 1PS
Summary Introduction
To discuss: Whether the given statements are true or false.
Expert Solution & Answer
Explanation of Solution
The false option is as follows:
Stock options offer managers the right (but not the obligation) to purchase their firm’s shares in the upcoming at a fixed price.
Hence, options (c) is false.
The true options is as follows:
The CEO from country U are paid much more than other countries CEOs.
Hence, options (a) is true.
The majority of the compensation fraction for country U’s CEOs arises from stock option grants.
Hence, options (b) is true.
Recently, country U’s accounting rules needs value of stock option grants as a recognition of compensation expense.
Hence, options (d) is true.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
An executive compensation scheme might provide a manager a bonus of $1,000 for every dollar by which the company’s stock price exceeds some cutoff level. In what way is this arrangement equivalent to issuing the manager call options on the firm’s stock?
The government of a country is planning to offer tax refunds and tax incentives to the largest companies in the country. The government feels that this is needed to fuel
innovation and increase production.
Which of the following, if true, would weaken the argument for providing tax incentives to big companies?
O A Only small enterprises have shown net employment creation during the past five years.
O B. Large companies are the biggest contributors to the presidential elections in the country.
C. High corporate taxes are the reason for high product prices in this country.
OD. The market capitalization of the biggest companies listed in the stock market has gone up in recent times.
E. Research and development by large companies has been a key contributor to the country's development.
Which of the following statements is CORRECT?
a. A good goal for a rm's management is maximization of expected EPS.
b. Most business in the U.S. is conducted by corporations, and corporations' popularity resultsprimarily from their favorable tax treatment.
c. Because most stock ownership is concentrated in the hands of a relatively small segment ofsociety, rms' actions to maximize their stock prices have little benet to society.
d. Corporations and partnerships have an advantage over proprietorships because a sole proprietoris exposed to unlimited liability, but the liability of all investors in the other types of businesses ismore limited.
e. The potential exists for agency conicts between stockholders and managers.
Please explain.
Chapter 12 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 12 - Prob. 1PSCh. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 3PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Management compensation We noted that management...Ch. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 16PSCh. 12 - Economic income Consider the following project:...Ch. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
Knowledge Booster
Similar questions
- Amy Tanner is an analyst for a US pension fund. Her supervisor has asked her to value the stocks of General Electric (GE) and General Motors (GM) Tanner wants to evaluate the appropriateness of the dividend discount model (DDM) for valuing GE and GM and has compiled the following data for the two companies from 211 to 2018. GE GM EPS ($) DPS ($) pay-out EPS ($) Ratio DPS ($) Year рay-out Ratio 2018 2.17 1.15 0.53 -68.45 1.00 -0.01 2017 1.99 1.03 0.52 -3.5 1.00 -0.29 2016 1.76 0.91 0.52 -18.5 2.00 -0.11 2015 1.61 0.82 0.51 4.94 2.00 0.40 2014 1.55 0.77 0.50 5.03 2.00 0.40 2013 1.51 0.73 0.48 3.35 2.00 0.60 2012 1.41 0.66 0.47 1.77 2.00 1.13 2011 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, do a critical analysis and suggest whether the DDM is appropriate for valuing the stocks.arrow_forwardStereo Warehouse is a US retailer that off ers employees a defi ned benefi t pension plan andstock options as part of its compensation package. Stereo Warehouse prepares its fi nancialstatements in accordance with US GAAP.Peter Friedland, CFA, is an equity analyst concerned with earnings quality. He is particularly interested in whether the discretionary assumptions the company is making regardingcompensation plans are contributing to the recent earnings growth at Stereo Warehouse. Hegathers information from the company’s regulatory fi lings regarding the pension plan assumptions in Exhibit 4 and the assumptions related to option valuation in Exhibit 5.EXHIBIT 4 Assumptions Used for Stereo Warehouse Defi ned Benefi t Plan2009 2008 2007Expected long-term rate of return on plan assets 6.06% 6.14% 6.79%Discount rate 4.85 4.94 5.38Estimated future salary increases 4.00 4.44 4.25Infl ation 3.00 2.72 2.45EXHIBIT 5 Option Valuation Assumptions2009 2008 2007Risk-free rate 4.6% 3.8%…arrow_forwardsubject : research methodology in accounting and finance We find that managers with military experience pursue less tax avoidance than other managers and pay an estimated $1–$2 million more in corporate taxes per firm-year. These managers also undertake less aggressive tax planning strategies with smaller tax reserves and fewer tax havens. Although they leave tax money on the table, boards hiring these managers benefit from reductions in other gray areas in corporate reporting. The broad implications are as follows: for employee selection, boards can consider employees’ personal characteristics as a control mechanism when outputs are difficult to contract ex ante or measure ex post. Review these articles and identify:a. research strategies used by authors (experiment, surveys, archival, field research, or other), unit of analysis, & time horizonb. Why do you think so? Give evidence!c. How the data is collected?d. How the data is analyzed?arrow_forward
- Assume an Australian company with the following characteristics: volatile earnings high insurance cost most company tax paid outside Australia assess the appropriate level of dividends for this company, explain reasoning if the company wants to pay dividends which type of payout policy would you recommend it to use and whyarrow_forwardWhich is CORRECT? O Agency costs rise with the increases in the employee ownerships of that fırm O A takeover firm usually offers a higher price than the intrinsic value of the target firm O A higher tax rate increases the cost of corporate borrowing Terminal value is the present value at the terminal year of cash flows beyond the last year of forecastingarrow_forwardWhich of the following can be classified under Business Finance? Select one: a. Australian government reducing individual tax thresholds b. George's decision to purchase 20 000 units of Afterpay for himself c. Qantas' capital raising following COVID lockdowns d. Jerome Powell and the Fed applying quantitative easing to buy government bonds to support businessesarrow_forward
- Hw.21. Kaplan & Skadden Inc. is a security investment firm. The firm has identified a company with great potential from India and would like to buy and hold its stock for investment. The stock is currently selling for $30 per share, and Kaplan & Skadden thinks it will climb to $120 per share within three years. Draft a memo analyzing how can the firm ensure that any gain it realizes from this transaction will be taxed as long term capital gain?arrow_forwardWhich of the following is FALSE about IPO underpricing? a) The average underpricing in US IPOs is between 15-20% B) IPOs in Europe and the Americas on average exhibit less underpricing compared to IPOs in Asian and Pacific markets C) The underpricing, and the subsequent large returns on the first day of trading, helps the firm receive more money for the shares offered in the IPO. D) Average IPO underpricing in the US is around 17%.arrow_forwardWhich of the following statements is/are FALSE: I. There is higher demand for the services of chartered accountants in jurisdictions with well-developed equity markets, which are dominated by many outside shareholders (widespread ownership) and where the tax rules are the accounting rules. II. US GAAP allows less accounting choice than IFRS. III. If financial reporting was not regulated, companies would likely face a lower cost of capital. IV. IFRS applies to listed companies in 130+ jurisdictions around the world. Select one: a. I, II, III II, III, IV b. O c. I and III Od. III and IV e. II and III Of. I and IIarrow_forward
- plz solve!!arrow_forwardDavid Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: Now assume that Firms L and U are both subject to a 25% corporate tax rate. Using the data given in part b, repeat the analysis called for in parts b(1) and b(2) using assumptions from the MM model with taxes.arrow_forwardArgentina's commercial code requires all publicly listed companies to provide Annual reports Quarterly reports Monthly report Twice a year annual report Prior to the revision by International Accounting Standard Board in 2003 and 2004. Malaysian Accounting Standard Board adopted standards. of FPS 32 standards 26 standards 22 standards 0 standards The accounting systems of developing nations or emerging markets can be best described by Questionable integrity and transparency in financial reports Reaching full potential in international markets Ease of obtaining international capital Going through highly intensive standard setting process Institute of Chartered Accountants in Inda is a ful member of which of the following accounting body Accounting Standards Committee Intemational Accounting standard board International Federation of Accountants Financial Accounting standard boardarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubBusiness/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage