《现代财务管理》课后习题答案Chapter01

CHAPTER1THEROLEANDOBJECTIVEOFFINANCIALMANAGEMENTANSWERSTOQUESTIONS:Shareholderwealthisdefinedasthepresentvalueoftheexpectedfuturereturnstotheowners(thatis,shareholders)ofthefirm.Thesereturnscantaketheformofperiodicdividendpaymentsand/orproceedsfromthesaleofthestock.Shareholderwealthismeasuredbythemarketvalue(thatis,thepricethatthestocktradesinthemarketplace)ofthefirm'scommonstock.Profitmaximizationtypicallyisdefinedasamorestaticconceptthanshareholderwealthmaximization.Theprofitmaximizationobjectivefromeconomictheorydoesnotnormallyconsiderthetimedimensionortheriskdimensioninthemeasurementofprofits.Incontrast,the———shareholderwealthmaximizationobjectiveprovidesaconvenientframeworkforevaluatingboththetimingandtherisksassociatedwithvariousinvestmentandfinancingstrategies.Themarginaldecisionrulesderivedfromeconomictheoryareextremelyusefultoawealthmaximizingfirm.Anydecision,eitherintheshortrunorthelongrun,thatresultsinmarginalrevenuesexceedingthemarginalcostsofthedecisionwillbeconsistentwithwealthmaximization.Whenadecisionhasconsequencesextendingbeyondayearintime,themarginalbenefitsandmarginalcostsofthatdecisionmustbeevaluatedinapresentvalueframework.———Aclosely-heldfirmismorelikelytobeawealthmaximizerthanacorporationwithwideownership.Intheclosely-heldfirm,theownersandthemanagerswillsharethesameobjectivesbecausetheownersarethemanagers.Inawidely-heldcorporation,wheretheownershipandmanagementfunctionsareseparate,itislikelythatmanagersmaypursueobjectivesthataremoreself-servingthanowner-serving.Examplesofalternativeobjectivesthatmightbepursuedinthissituationareextremerisk-aversebehavior,sizemaximization,satisficing,orpersonalutilityfunctionmaximization.AmorecompletediscussionofalternativeobjectivesmaybefoundinMcGuigan,Moyer,andHarris,ManagerialEconomics,10thedition(South-Western,20059),Chapterl.———Thegoalofshareholderwealthmaximizationisalong-termgoal.Shareholderwealthisafunctionofallthefuturereturnstotheshareholders.Hence,inmakingdecisionsthatmaximizeshareholderwealth,managementmustconsiderthelong-runimpactonthefirmandnotjustfocusonshort-run(i.e.,currentperiod)effects.Forexample,afirmcouldincreaseshort-runearningsanddividendsbyeliminatingallresearchanddevelopmentexpenditures.However,thisdecisionwouldreducelong-runearningsanddividends,andhenceshareholderwealth,becausethefirmwouldbeunabletodevelopnewproductstoproduceandsell.———Engaginginsocialresponsibilityactivitiescanbejustifiedonthebasisthattheseactivitieshelptocreateanenvironmentinwhichthegoalofshareholderwealthmaximizationmoreeasilycanbepursued.Theseparationofownershipandcontrolincorporationsmayresultinmanagementpursuinggoalsotherthanshareholderwealthmaximization,suchasmaximizationoftheirownpersonalwelfare(utility).Concernfortheirownself-interestsmayleadmanagementtomakedecisionsthatpromotetheirlong-runsurvival(jobsecurity),suchasminimizing(orlimiting)theamountofriskincurredbythefirm.Anagencyrelationshipoccurswhenone精品文档———ormoreindividuals(theprincipals)hireanotherindividual(theagent)toperformaserviceonbehalfoftheprincipals.Twoofthemostimportantagencyrelationshipsinfinancearebetweenthestockholders(principals)andmanagement(agent),andbetweentheowners(agents)andcreditors(principals).Agencycostsareincurredwhenattemptingtocontrolagencyproblems.Agencyproblemsarisewhentheagentmakesdecisionsconsistentwiththemaximizationofhisorherownutilityratherthanthemaximizationoftheutilityoftheprincipals.Examplesofagencycostsincurredbyshareholdersinclude?Expenditurestostructurethe精品文档———organizationinawaythatwillminimizetheincentivesformanagementtotakeactionscontrarytoshareholderinterests,suchasprovidingaportionofcompensationintheformofthestockinthecompany.?Expenditurestomonitormanagement'sperformance,suchasinternalandexternalaudits.?Bondingexpenditurestoprotectagainstmanagerialdishonesty.?Lostprofits(opportunitycosts)ofcomplexorganizationalstructures.Creditors(theprincipal)haveafixedfinancialclaimontheresourcesofthefirm精品文档———whereasowners(agents)havearesidualclaimonthefirm'sresources.Asaconsequence,ownersmayattempttoincreasetheriskinessofthefirm'sinvestmentsinhopesofearninghigherreturns.Creditorssufferfromthistypeofbehaviorbecausetheydonothaveanopportunitytoshareinthesehigherpotentialreturns,yettheysufferfromtheincreasedrisk.Thecontrollerusuallyhasresponsibilityforallaccountingrelatedfunctions,suchasfinancialaccounting,costaccounting,andaccountinginformationsystems.Thetreasurernormallyhasresponsibilityfortheacquisition,custody,andexpenditureoffunds,includingcashandmarketablesecuritiesmanagement,精品文档———capitalbudgetinganalysis,financial,andpensionfundmanagement,andfinancialplanning.Becausenotallcompaniesdividetheresponsibilitiesinthismanner,theactualfunctionsperformedbythecontrollerandtreasurerwillvaryfromcompanytocompany.a.Financialmanagementemploysthemarginalrevenue--marginalcostrelationshipsofmicroeconomicsinmakinglong-terminvestment(capitalbudgeting)decisionsandshort-terminvestment(workingcapital)decisions.b.Financialmanagementrequiresanunderstandingofmacroeconomicconceptsdealingwithmonetaryandfiscalpolicy.Knowledgeoftheseconceptsisnecessary精品文档———inmakingcompanysalesforecastsandinraisingfundsinthemoneyandcapitalmarkets.Earningspersharefigurescanbemisleadingbecausefactorssuchas(1)reductionsinthenumberofshares;(2)adeclineinthereturnbeingearnedonthecompany'sequity;and(3)anincreaseintheriskofthefirm,allcouldleadtoincreasedearningspershare,butnotnecessarilytoanincreaseinthevalueofthefirm'ssharesinthemarketplace.ThebondholdersintheRJRNabiscotakeovercasewantedtoblockthetransactionbecausethetakeoverwastobefinancedwithsubstantialincreasesintheamountofdebt,andthereforeincreasesin精品文档———theriskofdefault.Thecaseofthebondholderswasrejectedinthecourtsbecause,itwasargued,theseknowledgeableinvestorsknewtheywereexposedtothistypeofeventriskwhentheypurchasedthebonds,andpresumablywerecompensatedfortheexpectedriskintheformoftheriskpremiumearnedonthebonds.Thethreemajorfactorsthatdeterminethemarketvalueofafirm'sstockare⑴theamountofthecashflowsexpectedtobegeneratedforthebenefitofstockholders;(2)thetimingofthesecashflows;and(3)theriskofthecashflows.Thenetpresentvalueofaninvestmentrepresentsthecontributionofthat精品文档———investmenttothevalueofthefirmand,accordingly,tothewealthofshareholders.Thus,netpresentvalueisadecisioncriterionthatassistsmanagersinachievingtheobjectiveofshareholderwealthmaximization.Themarket'sreactionmayhavereflected(1)anexpectationthattherewouldultimatelybeasplittingupandspinoffofthenaturalresourcesbusinessfromthesteelbusiness,therebyassuringthatcashflowsgeneratedbyMarathonOilwouldnotbewastedonreinvestmentinthelowreturnsteelbusiness;or(2)thepotentialthatthisseparationwouldmakeitmoredifficultforthesteelsegmentofUSXtotapthecashflowsofMarathonOil.———Bydeclaringbankruptcy,Polaroidhopedtoprotectitselffromtheclaimsofcreditorswhileitsoughtawaytoeithersellorrestructureitsassets.Presumably,themanagementatPolaroidthoughtthatthebankruptcydeclarationwouldprovideitwithanopportunitytorestructureitself,whileitwasprotectedfromthepressuresofmakingburdensomeinterestandotherpaymentstocreditors.Firmsthatexpecttheiremployeestoactaccordingtoahighstandardofethicalbehaviorcanexpecttoexperiencelowerlitigationcosts.Customers,suppliers,andinvestorscanbeexpectedtovalueafirmcommittedtomaintaininghighethicalstandardsintheconductofitsbusiness,andtherebybuildlong-termloyaltiesand———businessrelationships.Soleproprietorshipsarecharacterizedbythevirtualnon-existenceofagencyproblemsbetweenownersandmanagers,becausetheownerandmanagerareusuallyoneandthesame.Ofcourse,therestillisthepotentialagencyconflictbetweencreditorsandowners.However,eveninthiscasetherisktocreditorsisreducedbecausetheownerhasunlimitedpersonalliabilityforthedebtsofthefirm.Themajorshortcomingoftheproprietorshipformoforganizationisthelimitedabilityoftheownertoraisecapital,becausetheowneristhesolesourceofequityandtheownerispersonallyliableforallofthefirm'sdebts.Partnershipsprovideagreaterpotentia