【正文】 match buyers and sellers of assets. Dealer markets like NASDAQ consist of dealers operating at dispersed locales who buy and sell assets themselves, municating with other dealers either electronically or literally overthecounter. 10. Such anizations frequently pursue social or political missions, so many different goals are conceivable. One goal that is often cited is revenue minimization。 ., provide whatever goods and services are offered at the lowest possible cost to society. A better approach might be to observe that even a notforprofit business has equity. Thus, one answer is that the appropriate goal is to maximize the value of the equity. 11. Presumably, the current stock value reflects the risk, timing, and magnitude of all future cash flows, both shortterm and longterm. If this is correct, then the statement is false. 12. An argument can be made either way. At the one extreme, we could argue that in a market economy, all of these things are priced. There is thus an optimal level of, for example, ethical and/or illegal behavior, and the framework of stock valuation explicitly includes these. At the other extreme, we could argue that these are noneconomic phenomena and are best handled through the political process. A classic (and highly relevant) thought question that illustrates this debate goes something like this: ―A firm has estimated that the cost of improving the safety of one of its products is $30 million. However, the firm believes that improving the safety of the product will only save $20 million in product liability claims. What should the firm do?‖ 13. The goal will be the same, but the best course of action toward that goal may be different because of differing social, political, and economic institutions. 14. The goal of management should be to maximize the share price for the current shareholders. If management believes that it can improve the profitability of the firm so that the share price will exceed $35, then they should fight the offer from the outside pany. If management believes that this bidder or other unidentified bidders will actually pay more than $35 per share to acquire the pany, then they should still fight the offer. However, if the current management cannot increase the value of the firm beyond the bid price, and no other higher bids e in, then management is not acting in the interests of the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation is acquired, poorly monitored managers have an incentive to fight corporate takeovers in situations such as this. 15. We would expect agency problems to be less severe in countries with a relatively small percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners and managers on decisions concerning risky projects. In addition, institutions may be better able to implement effective monitoring mechanisms on managers than can individual owners, based on the institutions‘ deeper resources and experiences with their own management. The increase in institutional ownership of stock in the United States and the growing activism of these large shareholder groups may lead to a reduction in agency problems for . corporations and a more efficient market for corporate control. CHAPTER 1 B3 16. How much is too much? Who is worth more, Ray Irani or Tiger Woods? The simplest answer is that there is a market for executives just as there is for all types of labor. Executive pensation is the price that clears the market. The same is true for athletes and performers. Having said that, one aspect of executive pensation deserves ment. A primary reason executive pensation has grown so dramatically is that panies have increasingly moved to stockbased pensation. Such movement is obviously consistent with the attempt to better align stockholder and management interests. In recent years, stock prices have soared, so management has cleaned up. It is sometimes argued that much of this reward is simply due to rising stock prices in general, not managerial performance. Perhaps in the future, executive pensation will be designed to reward only differential performance, ., stock price increases in excess of general market increases. CHAPTER 2 FINANCIAL STATEMENTS, TAXES AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant loss in value. It‘s desirable for firms to have high liquidity so that they have a large factor of safety in meeting shortterm creditor demands. However, since liquidity also has an opportunity cost associated with it—namely that higher returns can generally be found by investing the cash into productive assets—low liquidity levels are also desirable to the firm. It‘s up to the firm‘s financial management staff to find a reasonable promise between these opposing needs. 2. The recognition and matching principles in financial accounting call for revenues, and the costs associated with producing those revenues, to be ―booked‖ when the revenue process is essentially plete, not necessarily when the cash is collected or bills are paid. Note that this way is not necessarily correct。 they had no cash flow or market value consequences unless the new accounting information caused stockholders to revalue the derivatives. 11. Enterprise value is the theoretical takeover price. In the event of a takeover, an acquirer would have to take on the pany39。s value. In a takeover, the value of a firm39。 OE $28,900 We know that total liabilities and owner‘s equity (TL amp。 OE is equal to current liabilities plus long