Cost of capital can help define the acceptability of investment opportunities. Besides, the cost of capital can scheme the corporate finance arrangement. Generally, the best way for designing the corporate finance structure is based on information of changing of the capital market. So, manager can figure out information like accounting reports and their cost of capital to market. By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company.
Agency problems. Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organisation? In this context, what kinds of problems can arise?
As for stockholders they mainly use this information for forecasting dividends, earnings on the free cash flow. Question 2 What qualitative factors should analysts look for when evaluating a company’s likely future financial performance? Explain. When evaluating a company's future financial performance, some qualitative factors that should be considered are future prospects, the current environment weather it may be legal or regulatory, the competition , economy, the level of dependents on the
- How can cost of equity be estimated without comparable public companies. 3. Analysis / Result: Let us consider and analyze the above mentioned points. Also refer to the Excel Sheet – Marriott; What risk-free rate and risk premium should be used for cost of equity: To increase shareholder value MC use shareholders’ measure to estimate the cost of equity, which is Capital Asset Pricing Model (CAPM). According to the CAPM, the cost of equity is found by; Cost of equity = (equity / capital) x [ Risk free rate + (Beta x Risk premium) ] Risk free rate is the rate of return expected
According to Friedman, “A corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers and shareholders. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society” (221). The executives of the corporation have a responsibility to the shareholders because the corporation’s money is the shareholders money. As we read in the Forbes article, the author stated: “How did the corporation’s money somehow become the shareholder’s money?
MULTIPLE CHOICE QUESTIONS 1. The statement of cash flows should help investors and creditors assess each of the following except the a. entity's ability to generate future income. b. entity's ability to pay dividends. c. reasons for the difference between net income and net cash provided by operating activities. d. cash investing and financing transactions during the period.
Abstract This paper is discusses the Milton Friedman Theory and how it applies corporations and the government. It will also discuss the responsibilities of firms and the government and whether or not they play a role in the expansion the Friedman Discussion. Milton Friedman Goal of the Firm Milton Friedman is a noble prize winning economist whose philosophy on corporate social responsibility (CSR) has shaped the business world today. Friedman believed that businesses only social responsibility is to utilize resources and engage in activities that would maximize profits without the use of deception or fraud while conforming to the basic rules of society (Friedman, 1970) . Executives are hired to act as fiduciary agents of their stockholders for the purpose of increasing wealth (Smith, 2003).
Profit maximization C. Agency theory D. Social responsibility 2. Jensen and Meckling showed that __________ can assure themselves that the __________ will make optimal decisions only if appropriate incentives are given and only if the __________ are monitored. A. principals; agents; agents B. agents; principals; principals C. principals; agents; principals D. agents; principals; agents 3. __________ is concerned with the maximization of a firm's earnings after taxes. A.
Discuss the advantages and the limitations of “ratio analysis” There are several advantages and limitations of accounting ratios, I will address some of the key ones in this section Advantages * Accounting ratios can be used by investors to make decisions on whether or not to invest in a company or sell existing shares. * Accounting ratios can be used by management to give an indication of a company’s financial health i.e. is the company profitable? Can they meet creditor obligations? Are stock levels being efficiently managed?
Section I: Overview of Corporate Finance 1. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? A. articles of incorporation B. corporate breakdown C. agency problem D. bylaws E. legal liability 2. Which of the following questions are addressed by financial managers? I.