•Proxy fight–Proxy is the authority to vote someone else’s stock.A proxy fight develops when agroup solicits proxies in order to replace the existing board, and thereby replacing existingmanagement.•Cumulative voting and straight voting–The board of directors are elected every year at the annual meeting by the shareholdersof the company.Normally, each share represents one vote, however, the mechanism ofvoting can be quite different. Here, cumulative voting and straight voting are introduced.Cumulative voting is a procedure in which a shareholder might cast all votes for ONEmember of the board of directors, while in straight voting, the shareholder might cast allvotes for EACH member of the board of directors.•The principal-agent problem / agency problem–Agency problem is about the conflict of interest between the principals and their agent.In corporate finance, the most common form of agency problem is the conflict of interestbetween the shareholders and the management.•TryQuestion 1.1.2Chapter 2: Present Values1.2.1Net Present Value (NPV) and the Opportunity Cost of Capital•To calculate the net present value (NPV) of a project, (1) calculate the expected cash flows,including the initial investment, and (2) discount them at the opportunity cost of capital, i.e.the rate of return offered by equally risky investments. The NPV is simply the discounted sum.•Typical example: you are given that the payoff of a project is contingent on the state of theeconomy (slump, normal, boom).–Expected payoff: simple probability calculations–The opportunity cost of capital is not directly given, but you can deduce it from the rateof return of equally risky stocks available.–Finally, you can decide if the project should be accepted, depending on whether the NPVis positive (TryQuestion 2).1.2.2Investment vs. Consumption•Proposition: Under the assumption that all stockholders have equal access to capital mar-kets, all investors, regardless of their time patterns of desired consumption, will agree that aninvestment project with a positive NPV should be undertaken.•To justify the above proposition, we, for simplicity, study a one-period model in which aninvestor is considering how to allocate his income for current and future consumption.STAT2807 Corporate Finance for Actuarial ScienceSTAT3904 Corporate Finance for Actuarial ScienceTutorial 1∼Page 2∼PANG Siu Hin (Philip)Department of Statistics & Actuarial ScienceThe University of Hong Kong

The University of Hong KongDepartment of Statistics & Actuarial ScienceSTAT2807/STAT3904 Corporate Finance for Actuarial Science2013-2014 Second Semester–In most problems on this model, you are asked to calculate the consumption in the nexttime period, given the current consumption, or vice versa.–The relationship between these two quantities is given by the following self- explanatoryidentity:consumption1= (income0-consumption0-investment0)(1 +r) +projectvalue1Using this equation, you can easily determine all possible mixes of present and futureconsumption.

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