We will often find out this sentence everywhere. When still being a kid, mom used to order us to always read, so did the teacher. Some books are fully read in a week and we need the obligation to support reading. What about now?
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Est time: 2. A trademark, a factory, undeveloped land, and your work force c, d, e, and g are all real assets. Real assets are identifiable items with intrinsic value. The others in the list are financial assets, that is, these assets derive value because of a contractual claim. Est time: 3. Financial assets, such as stocks or bank loans, are claims held by investors.
Corporations sell financial assets to raise the cash to invest in real assets such as plant and equipment. Some real assets are intangible.
Capital budgeting means investment in real assets. Financing means raising the cash for this investment. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
The shares of closely held corporations are not publicly traded and are held by a small group of private investors. A sole proprietor has unlimited liability. Investors in corporations have limited liability. They can lose their investment, but no more. Est time: 4. Items c and d apply to corporations. Because corporations have perpetual life, ownership can be transferred without affecting operations, and managers can be fired with no effect on ownership.
Other forms of business may have unlimited liability and limited life. Est time: 5. Separation of ownership and management typically leads to agency problems, where managers prefer to consume private perks or make other decisions for their private benefit—rather than maximize shareholder wealth.
Est time: 6. Unless their financial assets are as safe as U. The CFO could consider what the expected return is on assets with similar risk. Est time: 7. Shareholders will only vote for: a maximize shareholder wealth. Shareholders can modify their pattern of consumption through borrowing and lending, match risk preferences, and hopefully balance their own checkbooks or hire a qualified professional to help them with these tasks.
Est time: 8. Espinoza could then sell some or all of these more valuable shares in order to provide for her retirement income. Investors may also wonder whether all of the misdeeds have been contained.
Est time: Managers may also receive compensation, either bonuses or stock and option payouts whose value is tied roughly to firm performance.
And managers can be fired by the board of directors, which in turn is elected by shareholders. If a firm instituted a new takeover defense, we might expect to see the value of its shares decline as agency problems increase and less shareholder value maximization occurs. The counterargument is that defensive measures allow managers to negotiate for a higher purchase price in the face of a takeover bid—to the benefit of shareholder value.
Answers will vary. The principles of good corporate governance discussed in the chapter should apply. Est time: Appendix Questions: 1.
Dollars Next Year , , , , Dollars Now b.
Principles of Corporate Finance 13th © 2020 Brealey Test Bank and Solution Manual
principles of corporate finance brealey myers allen 10th edition test bank