Chapter 29 (pages 983-984): 1.What inherent characteristic of corporations creates the need for a system of checks on manager behavior? 2. What are some examples of agency problems? 3.What are the advantages and disadvantages of the corporate organizational structure? 4.What is the role of the board of directors in corporate governance? 1.What inherent characteristic of corporations creates the need for a system of checks on manager behavior? 2.What are some examples of agency problems? 3.What are the advantages and disadvantages of the corporate organizational structure? Managing Agency Conflict 4.Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.5 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7%, a marginal corporate tax rate of 35%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? 5.Suppose Alcatel-Lucent has an equity cost of capital of 10%, market capitalization of $10.8 billion, and an enterprise value of $14.4 billion. Suppose Alcatel-Lucent’s debt cost of capital is 6.1% and its marginal tax rate is 35%. “� a.What is Alcatel-Lucent’s WACC? “� b.If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows? c. Alcatel-Lucent’s debt-to-value ratio is d = (14.4 “� 10.8) / 14.4 = 0.25. The project’s debt capacity is equal to d times the levered value of its remaining cash flows at each date. 10.Is it necessarily true that increasing managerial ownership stakes will improve firm performance? 11.How can proxy contests be used to overcome a captured board? 12.What is a say-on-pay vote? 13.What are a board’s options when confronted with dissident shareholders? Illustrate how management focus on forecasting, planning, and business strategy can create wealth for a company in your industry. Explain how it’s possible for sales growth to decrease the value of a profitable company. What are some actions an entrenched management might take that would harm shareholders? Singal Inc. is preparing its cash budget. It expects to have sales of $50,000 in January, $60,000 in February, and $70,000 in March. If 50% of sales are for cash, 30% are credit sales paid in the month after the sale, and another 20% are credit sales paid 2 months after the sale, what are the expected cash receipts for March? The Chadmark Corporation’s budgeted monthly sales are $10,000. In the first month, 20% of its customers pay and take the 5% discount. The remaining 80% pay in the month following the sale and don’t receive a discount. What is the average cash gain or (loss) during a typical month for the Chadmark Corporation?
Previous answers to this question
This is a preview of an assignment submitted on our website by a student. If you need help with this question or any assignment help, click on the order button below and get started. We guarantee authentic, quality, 100% plagiarism free work or your money back.
Get The Answer