Please see atached for both case study. Answer the questions completely according to details.
Details:
The purpose of this assignment is to explain core concepts related to corporate valuation and governance and to identify strategies for conducting business with personal and professional integrity.
Read the Chapter 13 Mini Case on page 544 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a through d.
Using the mini case information, write a 250-500 word letter of intent discussing specific strategies for how you will conduct your start-up business with personal and professional integrity.
Details:
The purpose of this assignment is to explain core concepts related to the U.S. financial system.
Read the Chapter 1 Mini Case on pages 48-49 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions A through D.
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Part 5 Corporate Valuation and Governance
Suppose you decide (as did Steve fobs and Mark Zuckerberg) to start a company. Your
product is a softrvare platforrn that integrates a wide range of media devices, including
Iaptop computers, desktop computers, digital video recorders, and cell phones. Your
initial market is the stuelent body at your university. Once you have established your
company and set up procedures for operating it, 1’ou plan to expand to other colleges in
the area, and eventually to go nationwide. At some point, hopefully sooner rather than
later, you plan to go public with an IPO, and then to buy a yacht and take off for the
South Pacific to indulge in ynur passion tbr underwater photography. With these issues in
mind, you need to answer fclr yourself, and potenti;rl investors, the following questions.
a” What is an agency relationship? When you first begin operations, assuming you are
the only employee and only your money is invested in the business,’would anv agency
conflicts exist? Explain your answer.
b. If you expanded and hired additional people to help you, might that give rise to
agency problems?
c. Suppose you need additional capital to expand and you sell some stock to outside
investors. If you maintain enough stock to control the company, what type of ager-rcy
conflict might occur?
d Suppose your company raises funds from outside lenders. What type of agency costs
might occur? How rnight lenders mitigate the agency costs?
e. Suppose your company is very successful and you cash out most of your stock and
turn the company over to an elected board of directors. Neither you nor any otl.rer
stockholders o1{‘n a controlling interest (this is the situation at most public
companies). List six potential managerial behaviors that can harm a firm’s value.
f. What is corporate governance? List five corporate governance provisions that are
internal to a firm and are under its control.
g. What characteristics of the board of directors usually leacl to effective corporate
governance?
h. List three provisions in the corporate cirarter that atTect takeovers.
i. Briefly describe the use of stock options in a compensation p1an. What are some
potential probiems with stock options as a form of compensation?
j. What is block ownership? How does it affect corporate governance?
k. Briefly explain how regulatory agencies and 1ega1 systems affect corporate
governance.
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Part I The Company and Its Environment
g” Mutual fund; money rnarket fund
h. Physical location exchanges; computer/teiephone networks
i. Open outcry auction; dealer market; electronic communications nelrvork (E,CN)
j. Production opporlunities; tirne preferences tbr consumption
k. Foreign trade deficit
r, -” What are the three principal forms of business organization? What are the advantages and
disadvantages of each?
:i :,, What is a firm’s fundamental, or intrinsic, value? What might cause a firm’s intrinsic
vaiue to be different from its actual market value?
i ‘ il Edmund Enterprises recently made a large investment to upgrade its technology.
Although these improvements won’t have much of an impact on performance in the short
run, they are expected to reduce future costs signiticantly. What impact will this
investment have on Edmund Enterprises’s earnings per share this year? What impact
might this investment have on the company’s intrinsic value and stock price?
,I ‘:’i f)escribe the ways in which capital can be transferred from suppliers of capital to those
who are demanding capital.
what are finar-rcial intermediaries, and what economic functions do they perforrn?
is an initial public offering an example of a primary or a secondary market transaction?
Differentiate belween dealer rnarkets and stock markets that have a physical location.
Identi{, and briefly compare the two leading stock exchanges in the United States todav.
(1-6)
(L-7)
(1-8)
(1-el
Assume that you recentiy graduated and have just reported to work as an investment
advisor at the brokerage firm of Balil< and Kiefer Inc. One of the firm's clients is Michelle
DellaTorre, a professional tennis player who has just come to the United States from
Chile. DellaTorre is a highly ranked tennis plaver u,ho would like to start a company to
produce and market apparel she designs. She also expects to invest substantial amounts of
money through Balik and Kiefer. DellaTorre is very bright, and she rvould like to understand
in general terms what will happen to irer money. Your boss has developed the
following set of questions you must answer to explain the U.S. financial system to
DeilaTorre.
a. Why is corporate finance important to all managers?
b. Describe the organizational forms a company rnight have as it evolves from a start-up
to a major corporatir:rn. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow? what are agen(:y problems?
What is corporate governance?
rJ. What should be the prlmary objective of managers?
(1) Do firms have any responsibilities to society at large?
(2) Is stock price maximization good or bad for society?
(3) Should firms behave ethically?
What three aspects of cash flows affect the value of any in1,s51m.r11
What are free cash flows?
What is the tveighted ayerage cost of capital?
How do free cash flows and the iveighted average cost of capital interact to determine
a firm’s value?
f.
o
b’
h.
