【正文】 ls and Governance of the Corporation 112 169。 building code requirements enforced by local governments。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 12. Takeover defenses increase the target firm’s agency problems. One of the mechanisms that stockholders rely on to mitigate agency problems is the threat that an underperforming pany (with an underperforming management) will be taken over by another pany. If management is protected against takeovers by takeover defenses, it is more likely that managers will act in their own best interest, rather than in the interests of the firm and its stockholders. Est time: 01–05 13. Both capital budgeting decisions and capital structure decisions are longterm financial decisions. However, capital budgeting decisions are longterm investment decisions, while capital structure decisions are longterm financing decisions. Capital structure decisions essentially involve selecting between equity financing and longterm debt financing. Est time: 01–05 14. A bank loan is not a ―real‖ asset that can be used to produce goods or services. Rather, a bank loan is a claim on cash flows generated by other activities, which makes it a financial asset. Est time: 01–05 15. Investment in research and development creates knowhow. This knowledge is then used to produce goods and services, which makes it a real asset. Est time: 01–05 16. The responsibilities of the treasurer include the following: supervising cash management, raising capital, and banking relationships. The controller’s responsibilities include supervision of accounting, preparation of financial statements, and tax matters. The CFO of a large corporation supervises both the treasurer and the controller. The CFO is responsible for largescale corporate planning and financial policy. Est time: 01–05 Chapter 01 Goals and Governance of the Corporation 15 169。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Solutions to Chapter 1 Goals and Governance of the Corporation 1. Investment decisions: ? Should a new puter be purchased? ? Should the firm develop a new drug? ? Should the firm shut down an unprofitable factory? Financing decisions: ? Should the firm borrow money from a bank or sell bonds? ? Should the firm issue preferred stock or mon stock? ? Should the firm buy or lease a new machine that it is mitted to acquiring? Est time: 01–05 2. A corporation is a distinct legal entity, separate from its owners (., stockholders). The stockholders have limited liability for the debts and other obligations of the corporation. The liability of the individual stockholder is generally limited to the amount of the stockholder’s investment in the shares of the corporation. Creation of a corporation is a legal process that requires the preparation of articles of incorporation. On the other hand, a sole proprietorship is not distinct from the individual who operates the business. Therefore, the sole proprietor (., the individual) directly owns the business assets, manages the business, and is personally responsible for the debts of the sole proprietorship. Est time: 01–05 3. The key advantage of separating ownership and management in a large corporation is that it gives the corporation permanence. The corporation continues to exist if managers are replaced or if stockholders sell their ownership interests to other investors. The corporation’s permanence is an essential characteristic in allowing corporations to obtain the large amounts of financing required by many business entities. Est time: 01–05 Chapter 01 Goals and Governance of the Corporation 12 169。 2020 by McGrawHill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. b. The reduction in dividends, in order to allow increased reinvestment, can be consistent with maximization of current market value. If the firm has attractive investment opportunities, and wants to save the expenses associated with issuing new shares to the public, then it could make sense to reduce the dividend in order to free up capital for the additional investments. c. The corporate jet would have to generate benefits in excess of its costs in order to be considered stockprice enhancing. Such benefits might include time savings for executives and greater convenience and flexibility in travel. d. Although the drilling appears to be a bad bet, with a low probability of success, the project may be valuemaximizing if a successful oute (although unlikely) is potentially sufficiently profitable. A oneinfive chance of success is acceptable if the payoff conditional on finding an oil field is 10 times the costs of exploration. Est time: 06–10 21. a. Increased market share can be an inappropriate goal if it requires reducing prices to such an extent that the firm is harmed financially. Increasing market share can be part of a wellreasoned strategy, but one should always remember that market share is not a goal in itself. The owners of the firm want managers to maximize the value of their investment in the firm. b. Minimizing costs can also conflict with the goal of