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Chapter 4 Questions and Answers

Chapter 4 Questions and Answers - Chapter 4 Questions and...

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Click to edit Master subtitle style 6/6/11 Chapter 4 Questions and Answers International Finance
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6/6/11 Question 1 The majority of major corporations are franchised as public corporations. Discuss the key strength and weakness of the “public corporation.” When do you think the public corporation as an organizational form is unsuitable?
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6/6/11 Answer: Question 1 Public corporation: A company jointly owned by a multitude of shareholders who are protected with limited liability. Key Strength: The ability to raise large amounts of capital at relatively low costs because risk is distributed amongst many investors and ownership is easily exchanged on liquid stock markets. Key Weakness: The agency problem is the key weakness of the public
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6/6/11 Question 2 The public corporation is owned by a multitude of shareholders but run by professional managers. Managers can take self-interested actions at the expense of shareholders. Discuss the conditions under which the so-called agency problem arises.
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