5283answers1.jan253 - End of Chapter 1 Questions Problems...

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End of Chapter 1 Questions, Problems and Solutions CORPORATE FINANCE Professor Megginson Spring Semester 2003 Questions 1-1) Why must a financial manager have an integrated understanding of the five basic finance functions? Has the risk management function become more important over recent years? Why is the corporate governance function considered a finance function? 1-2) Enter the home page of the Careers in Business website ( www.careers-in-business.com ) and page through the finance positions listed and their corresponding salaries. What skill sets or job characteristics lead to the variation in salaries? Which of these positions generally require prior work experience? 1-3) What are the advantages and disadvantages of the different forms of business organization? Could the limited liability advantage of a corporation also lead to an agency problem? Why? What form would an upstart entrepreneur likely prefer? 1-4) Describe the differences between businesses in the United States and those in foreign countries with respect to taxation, financial disclosure, and ownership structure. Is privatization reducing or increasing these differences? 1-5) Can there be a difference between profit maximization and shareholder wealth maximization? If so, what could cause this difference? Which of the two should be the goal of a financial manager? 1-6) Define a corporate stakeholder. Which groups are considered to be stakeholders? Would stockholders also be considered stakeholders? Compare the shareholder wealth maximization principle to the stakeholder wealth preservation principle in terms of economic systems. Which appears to resemble capitalism and which favors socialism? 1-7) What is meant by an “agency problem” or “agency cost”? Do these interfere with shareholder wealth maximization? Why? What mechanisms minimize these problems/costs? Are compensation contracts effective in mitigating these problems/costs? 1-8) Are ethics critical to the financial manager’s goal of shareholder wealth maximization? How are the two related? In your opinion, can ethics be taught through role-playing and case studies? *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** Answers to Chapter 1 Questions 1.1. A financial manager needs to know all five basic finance areas because they all impact his or her job. While the manager’s primary responsibilities may be in raising money or choosing
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This note was uploaded on 03/21/2011 for the course FI 360 taught by Professor Tavbin during the Spring '08 term at Park.

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5283answers1.jan253 - End of Chapter 1 Questions Problems...

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