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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Chapter 32, Problem 10PS
a)
Summary Introduction
To determine: Whether the statement is true or false.
b)
Summary Introduction
To determine: Whether the statement is true or false.
c)
Summary Introduction
To determine: Whether the statement is true or false.
d)
Summary Introduction
To determine: Whether the statement is true or false.
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The globalization of markets, even for services, has increased the number of competitors and often lowered their cost of sales. The high rate of technological change in many industries has created new sources of value for customers, but not necessarily led to increases in profit for the producers. Still, those companies that have the capability to create and implement strategies that take account of these changes are well rewarded for their efforts.
True or False?
If competition causes all companies to have similar ROEs in the long run, wouldcompanies with high turnovers tend to have high or low profit margins? Explainyour answer.
Match the following statements to sides of the fraud triangle.
v "Everyone fudges their numbers to look A.Opportunity
better. If we don't, we're at a
disadvantage."
B. Rationalization
C. Incentive
"Do you know that our division manager
gets a larger bonus if we achieve our
division profit goals? We should try to do
it to help her out."
v "We'need to make these sales targets
or our stock price will fall."
v "I like to hire employees who are loyal to
me.
11
"We work really hard around here, so
even if we cut a few corners it is still
okay."
"The accounting manager knows that I
prefer some reports to come directly to
me, rather than to internal audit."
Chapter 32 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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- (a) Explain how return on investment might lead a divisional manager to reject new investments that could be profitable for the company as a whole. (b) How can this disadvantage be overcome?arrow_forwardMarket-based bonus schemes may be considered more appropriate from a PAT perspective in industries in which: successful strategies will not be reflected in accounting profits for a number of periods. the price/earnings ratio is commonly greater than 12. profits may be the subject of manipulation by managers. capital investment is not an important strategic decision.arrow_forwardWhich of the following micro events that can be eliminated by diversification? a. all of them b.labor strikes c.fire d.none of them e.sales of a companyarrow_forward
- Can Retained Earnings grow too large? If so, what strategies might management take to reduce it?arrow_forwardEfficiency in adding value to an asset that is less valued is key to creating wealth. In what instance is this model not applicable? O when incidental restrictions require it so O when the organization redirects goals for higher productivity O when possibility of a shift spells provision of growth O when the organization is raking high percentage of returnarrow_forwardRestructuring the liabilities might positively influence the ROE, but will negativelyinfluence the service level of the company. - it depends on… answer The Statement is true if… The Statement is not true if… Definition key wordsarrow_forward
- From a strategic management perspective, the primary reason a firm performs CVP analysis is to find the level of sales that: Multiple Choice Promises a satisfactory growth in revenue. Produces a desired (or targeted) level of profit for the firm. Reduces the threat of bankruptcy. Will allow the firm to compete in a market place. Will just cover all fixed costs.arrow_forwardExplain the concept of terminal growth rate and discuss why it is impossible for firms with good management to have a terminal growth rate higher than industry or market growth rate forever.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_forward
- Under which of the following conditions could the overuse of financial leverage be detrimental to the firm? Multiple Choice In a stable industry. When there is cyclical demand for the firm's products. During an upswing in the business cycle. When there is low interest cost compared to return on assets.arrow_forwardWhich of the following is/are true regarding payout policy to shareholders? A. Most of the time that firms announce an increase in dividends, the market reacts negatively, as this is an admission that the firm has few good investment opportunities going forward. B. Large, mature firms should return a lot of cash to shareholders because there aren’t enough good investment opportunities out there for them. C. Flexibility is one key reason why we have seen much more use of share repurchases to return cash to shareholders in the last 3 decades. D. The primary value driver for the firm is how cash is paid out, not cash generation. E. (A) and (B) F. (B) and (C) G. (C) and (D)arrow_forwardYou are running a company with two divisions. One division is high risk and the other division is low risk. Which division should (or is expected to) earn a higher rate of return or ROIC? Why?arrow_forward
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