【正文】 THAT THESE EXPENDITURES WILL SIGNIFICANTLY ENHANCE FUTURE EARNINGS. BY CONTRAST, A COMPANY THAT UNDERTAKES ACTIONS TODAY TO ENHANCE ITS EARNINGS MAY SEE A DROP IN ITS STOCK PRICE, IF THE MARKET BELIEVES THAT THESE ACTIONS COMPROMISE FUTURE EARNINGS AND/OR DRAMATICALLY INCREASE THE FIRM’S RISK. H. WHAT FACTORS AFFECT STOCK PRICES? ANSWER: [SHOW S115 AND S116 HERE.] THE FIRM’S STOCK PRICE IS DEPENDENT ON MANAGERIAL ACTIONS, SUCH AS INVESTMENT DECISIONS, FINANCING DECISIONS, DIVIDEND POLICY DECISIONS, AND EXTERNAL FACTORS, INCLUDING LEGAL CONSTRAINTS, THE GENERAL LEVEL OF ECONOMIC ACTIVITY, TAX LAWS, AND CONDITIONS IN THE STOCK MARKET. MANAGERS CAN ENHANCE THEIR FIRM’S VALUE (AND ITS STOCK PRICE) BY INCREASING THEIR FIRM’S EXPECTED CASH FLOWS, SPEEDING UP CASH FLOWS, AND REDUCING THEIR RISKINESS. I. WHAT FACTORS AFFECT THE LEVEL AND RISKINESS OF CASH FLOWS? ANSWER: [SHOW S117 HERE.] MANAGERIAL ACTIONS, SUCH AS INVESTMENT DECISIONS, FINANCING DECISIONS, AND DIVIDEND POLICY DECISIONS AFFECT THE LEVEL, TIMING, AND THE RISKINESS OF THE FIRM’S CASH FLOWS. Learning Objectives: 5 14 Dryden Press After reading this chapter, students should be able to: ? Define dollar return and rate of return. ? Define risk and calculate the expected rate of return, standard deviation, and coefficient of variation for a probability distribution. ? Specify how risk aversion influences required rates of return. ? Graph diversifiable risk and market risk。 AND (3) FINANCIAL MANAGEMENT, OR ―BUSINESS FINANCE,‖ WHICH INVOLVES THE ACTUAL MANAGEMENT OF FIRMS. IN THE MONEY AND CAPITAL MARKETS AREA, MANY FINANCE MAJORS GO TO WORK FOR FINANCIAL INSTITUTIONS, INCLUDING BANKS, INSURANCE COMPANIES, MUTUAL FUNDS, AND INVESTMENT BANKING FIRMS. FINANCE GRADUATES WHO GO INTO INVESTMENTS OFTEN WORK FOR A BROKERAGE HOUSE EITHER IN SALES OR AS A SECURITY ANALYST. OTHERS WORK FOR BANKS, MUTUAL FUNDS, OR INSURANCE COMPANIES IN THE MANAGEMENT OF THEIR INVESTMENT PORTFOLIOS。 however, the board is not well served if the manager takes shortrun actions that bump up shortrun earnings at the expense of longrun profitability and the pany’s stock price. Consequently, the board may want to rely more on stock options and less on performance shares that are tied to accounting performance. 111 As the stock market bees more volatile, the link between the stock price and the management ability of senior executives is weakened. Therefore, in this environment panies may choose to deemphasize the awarding of stock and stock options and rely more on bonuses and performance shares that are tied to other performance measures besides the pany’s stock price. Moreover, in this environment it may be harder to attract or retain top talent if the pensation is tied too much to the pany’s stock price. 112 a. No, TIAACREF is not an ordinary shareholder. Because it is one of the largest institutional shareholders in the United States and it controls nearly $280 billion in pension funds, its voice carries a lot of weight. This ―shareholder‖ in effect consists of many individual shareholders whose pensions are invested with this group. b. The owners of TIAACREF are the individual teachers whose pensions are invested with this group. c. For TIAACREF to be effective in wielding its weight, it must act as a coordinated unit. In order to do this, the fund’s managers should solicit from the individual shareholders their ―votes‖ on the fund’s practices, and from those ―votes‖ act on the majority’s wishes. In so doing, the individual teachers whose pensions are invested in the fund have in effect determined the fund’s voting practices. 113 a. If the capital markets perceive the project as risky and therefore increasing the firm’s risk, the value of the firm’s outstanding bonds will declinehurting the firm’s existing bondholders. Subsequently, if management’s analysis of the project proves to be correct, the value of the firm’s bonds should increase. b. Dividends are paid from earnings after bondholders and the government have been paid. A dividend increase decreases the firm’s addition to Answers and Solutions: 1 7 retained earnings and subsequently lowers its growth rate。 Learning Objectives: 1 1 After reading this chapter, students should be able to: ? Explain the career opportunities available within the three interrelated areas of finance. ? Identify some of the forces that will affect financial management in the new millennium. ? Describe the advantages and disadvantages of alternative forms of business anization. ? Briefly explain the responsibilities of the financial staff within an anization. ? State the primary goal in a publicly traded firm, and explain how social responsibility and business ethics fit in with that goal. ? Define an agency relationship, give some examples of potential agency problems, and identify possible solutions. ? Identify major factors that determine the price of a pany’s stock, including those that managers have control over and those that they do not. ? Discuss whether financial managers should concentrate strictly on cash flow and ignore the impact of their decisions on EPS. Chapter 1 An Overview of Financial Management LEARNING OBJECTIVES Lecture Suggestions: 1 2 Chapter 1 covers some important concepts, and discussing them in class can be interesting. However, students can read the chapter on their own, so it can be assigned but not covered in class. We generally spend much of the first day going over the syllabus and discussing grading and other mechanics relating to the course. To the extent that time permits, we talk about the topics that will be covered in the course and the structure of the