【正文】 value maximization. For example, suppose a firm receives a large order for a product. The firm should be willing to pay overtime wages and to incur other costs in order to fulfill the order, as long as it can sell the additional product at a price greater than those costs. Even though costs per unit of output increase, the firm still es out ahead if it agrees to fill the order. c. A policy of underpricing any petitor can lead the firm to sell goods at a price lower than the price that would maximize market value. Again, in some situations, this strategy might make sense, but it should not be the ultimate goal of the firm. It should be evaluated with respect to its effect on firm value. d. Expanding profits is a poorly defined goal of the firm. The text gives three reasons: (i) There may be a tradeoff between accounting profits in one year and accounting profits in another year. For example, writing off a bad investment may reduce this year’s profits but increase profits in future years. Which year’s profits should be maximized? Chapter 01 Goals and Governance of the Corporation 17 169。 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. 6. Definedcontribution pension plans provide three key advantages as vehicles for retirement savings: ? Professional management. ? Diversification at low cost. ? Pension plan contributions are taxdeductible, and taxes on the earnings in the fund are deferred until the fund’s assets are distributed to retired employees. Est time: 01–05 7. Yes, an insurance pany is a financial intermediary. Insurance panies sell policies and then invest part of the proceeds in corporate bonds and stocks and in direct loans to corporations. The returns from these investments help pay for losses incurred by policyholders. Est time: 01–05 8. The largest institutional investors in bonds are insurance panies. Other major institutional investors in bonds are pension funds, mutual funds, and banks and other savings institutions. The largest institutional investors in shares are pension funds, mutual funds, and insurance panies. Est time: 01–05 9. The major functions of financial markets and institutions in a modern financial system are: ? Channeling savings to real investment: The savings of individual investors are made available for real investments by corporations and other business entities by way of financial markets and institutions. ? Transporting cash across time: Savers can save money now to be withdrawn and spent at a later time, while borrowers can borrow cash today, in effect spending today ine to be earned in the future. ? Risk transfer and diversification: Insurance panies allow individuals and business firms to transfer risk to the insurance pany, for a price. Financial institutions such as mutual funds allow an investor to reduce risk by diversification of the investor’s holdings. ? Liquidity: Financial markets and institutions provide investors with the ability to exchange an asset for cash on short notice, with minimal loss of value. A deposit in a bank savings account earns interest but can be withdrawn at almost any time. A share of stock in a publicly traded corporation can be sold at virtually any time. Chapter 01 Goals and Governance of the Corporation 113 169。 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. Est time: 01–05 33. As the text notes, the first step in doing well is doing good by your customers. Businesses cannot prosper for long if they do not provide to their customers the products and services they desire. In addition, reputation effects often make it in the firm’s own interest to act ethically toward its business partners and employees since the firm’s ability to make deals and to hire skilled labor depends on its reputation for dealing fairly. In some circumstances, when firms have incentives to act in a manner inconsistent with the public interest, taxes or fees can align private and public interests. For example, taxes or fees charged on pollution make it more costly for firms to pollute, thereby affecting the firm’s decisions regarding activities that cause pollution. Other ―incentives‖ used by governments to align private interests with public interests include legislation providing for worker safety and product, or consumer, safety。 if so, future profits will decrease, and the stock price, and the market value of the firm, will decrease in anticipation of these problems. Similarly, a corporation can boost profits over the short term by using less costly materials even if this reduces the quality of the product. Once customers catch on, sales will decrease and profits will fall in the future. The stock price will fall. The moral of these examples is that, because stock prices reflect present and future profitability, the corporation should not necessarily sacrifice future prospects for shortterm gains. Est time: 01–05 10. Financial managers refer to the opportunity cost of capital because corporations increase value for their shareholders only by accepting all investment projects that earn more than this rate. If the pany earns below this rate, the market value of the pany’s stock falls and stockholders look for other places to invest. To find the opportunity cost of capital for a safe investment, managers and investors look at current interest rates on