Week 1

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1.       Explain the following concepts:

a.       The objective of the firm in corporate finance

b.      The investment decision

c.       The financing decision

d.      The dividend decision

 

2.       Discuss the four major conflicts that may occur with the objective of shareholder value maximization.  For each conflict explain why it arises, provide an example, and discuss at least one way the  conflict can be mitigated:

a.       Stockholders and managers

b.      Stockholders and bondholders

c.       The firm and financial markets

d.      The firm and society

 

3.       Issues related to corporate governance:

a.       What is corporate governance and what is its purpose?

b.      Is it better or worse for shareholders if the board of directors of a company is comprised mainly of outsiders?  Please explain your reasoning.

 

4.       Research on the Internet the Efficient Market Hypothesis (EMH) theory.

a.       Summarize the EMH.

b.      What is the role of information in this theory?

c.       If a drug company announced that drug trials of a major research initiative failed, based on the EMH, what would we expect to happen to the stock price and why?

d.      Discuss some of the objections that “behavioral” financial economists have to the EMH.

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