1) Provide suitable ex of potential agency problem for corporation and recognize 3 means by which firm can help decrease or eliminate that problem. Briefly describe CNBC’s American Greed story, Inside WorldCom Scam. How does this story relate to agency theory? Shareholder theory? Do you think which maximizing present value of existing stock is the suitable goal of financial manager? Why or why not? Describe why marginal tax rate, rather than average tax rate, is used when computing cash flows from proposed new project.
2) Describe why DuPont identity is so useful to the financial manager. Suppose this is your 1st day on the job as new chief financial officer of mid--size company. Recognize 3 key ratios which you would find out first as you begin to try to understand financial status of firm. Describe why you chosen the three ratios that you did.