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Unformatted text preview: e same time, new compensation plans that better link managers’ performance with regard to shareholder wealth to their compensation are expected to be developed and implemented.
Unconstrained, managers may have other goals in addition to share price
maximization, but much of the evidence suggests that share price maximization—the focus of this book—is the primary goal of most firms. Review Questions
1–11 For what three basic reasons is profit maximization inconsistent with
1–12 What is risk? Why must risk as well as return be considered by the financial manager who is evaluating a decision alternative or action?
1–13 What is the goal of the firm and therefore of all managers and employees?
Discuss how one measures achievement of this goal.
1–14 What is economic value added (EVA®)? How is it used?
1–15 Describe the role of corporate ethics policies and guidelines, and discuss
the relationship that is believed to exist between ethics and share price.
1–16 How do market forces, both shareholder activism and the threat of
takeover, act to prevent or minimize the agency problem?
1–17 Define agency costs, and explain why firms incur them. How can management structure management compensation to minimize agency problems?
What is the current view with regard to the execution of many compensation plans? LG5 1.4 Financial Institutions and Markets financial institution
An intermediary that channels
the savings of individuals,
businesses, and governments
into loans or investments. Hint Think about how
inefficient it would be if each
individual saver had to
negotiate with each potential
user of savings. Institutions
make the process very efficient
by becoming intermediaries
between savers and users. Most successful firms have ongoing needs for funds. They can obtain funds from
external sources in three ways. One is through a financial institution that accepts
savings and transfers them to those that need funds. Another is through financial
markets, organized forums in which the su...
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- Fall '13