Unformatted text preview: e stockholders own the firm. Shouldn’t management do
what’s best for stockholders? Something’s wrong!” Loren responded, “Well,
maybe that explains why the company hasn’t concerned itself with the stock
price. Look, the only profits that stockholders receive are in the form of cash
dividends, and this firm has never paid dividends during its 20-year history. We
as stockholders therefore don’t directly benefit from profits. The only way we
benefit is for the stock price to rise.” Dale chimed in, “That probably explains
why the firm is being sued by state and federal environmental officials for dumping pollutants in the adjacent stream. Why spend money for pollution control? It
increases costs, lowers profits, and therefore lowers management’s earnings!”
Loren and Dale realized that the lunch break had ended and they must
quickly return to work. Before leaving, they decided to meet the next day to continue their discussion. Required
a. What should the management of Sports Products, Inc., pursue as its overriding goal? Why?
b. Does the firm appear to have an agency problem? Explain.
c. Evaluate the firm’s approach to pollution control. Does it seem to be ethical?
Why might incurring the expense to control pollution be in the best interests
of the firm’s owners in spite of its negative impact on profits?
d. On the basis of the information provided, what specific recommendations
would you offer the firm? WEB EXERCISE
W At the Careers in Finance Web site, www.careers-in-finance.com, you will find
information on career opportunities in seven different areas of finance. First
click on Corporate Finance in the Areas to Explore section and use the various
subsections to answer the following questions:
1. What are the primary responsibilities of the financial manager?
2. Summarize the types of skills a financial manager needs. CHAPTER 1 The Role and Environment of Managerial Finance 39 3. Describe the key job areas in corporate finance.
4. What are the salary ranges for the following positions in corporate finance:
rookie financial analyst, credit manager, chief financial officer? How do
these compare to salaries at General Motors or PepsiCo?
Now return to the home page and click on either Commercial Banking or Investment Banking.
5. How do careers in the area you chose (commercial banking or investment
banking) compare to careers in corporate finance in terms of skills required,
responsibilities, and salaries? Remember to check the book’s Web site at
for additional resources, including additional Web exercises....
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- Fall '13
- Finance, Corporation, Types of business entity