Financial Management:Leverage and Capital Structure
What is management’s primary goal?
What do investors expect to receive when they buy a share of stock?
Do investors know for sure what they will receive? Explain.
Based just on the name, which company would you regard as being
riskier, General Foods or South Seas Oil Exploration Company?
Explain.
When a company like Boeing decides to invest $5 billion in a new jet airliner, are its managers positive about the project’s effect on
Boeing’s future profits and stock price? Explain.
Would Boeing’s managers or its stockholders be better able to judge
the effect of a new airliner on profits and the stock price? Explain.
Would all Boeing stockholders expect the same outcome from an air liner project, and how would these expectations affect the stock
price? Explain.
What’s the difference between a stock’s current market price and its
intrinsic value?
Do stocks have a known and “provable” intrinsic value, or might
different people reach different conclusions about intrinsic values?
Explain.
Should a firm’s managers estimate its intrinsic value or leave this
estimation to outside security analysts? Explain.
If an action would maximize either the current market price or the
intrinsic value, but not both, which one should stockholders (as a
group) want managers to maximize? Explain.
Should its managers help investors improve their estimates of a
firm’s intrinsic value? Explain.
How would you define “business ethics”?
Can a firm’s incentive compensation plan lead to unethical behavior? Explain.
Unethical acts are generally committed by unethical people. What
are some things companies can do to help ensure that their employees act ethically?