1. The goal of Financial Management What goal should
always motivate the actions of the firm’s financial manager?
2. Agency Problems Suppose you own stock in a company.
The current price per share is $25. Another company has
just announced that it wants to buy your company and will
pay $35 per share to acquire all the outstanding stock. Your
company’s management immediately begins fighting off this
hostile bid. Is management acting in the shareholders’ best
interests? Why or why not?
3. Agency Problems and Corporate Ownership Corporate
ownership vary around the world. Historically, individuals
have owned the majority of shares in public corporations in
the United States. In Germany and Japan, however, banks,
other large financial institutions, and other companies own
most of the stock in public corporations.
a. Do you think agency problems are likely to be
more or less severe in Germany and Japan than
in the United States? Why?
b. What are the implications of this trend for agency
problems and corporate control? (In recent years,
large financial institutions such as mutual funds
and pension funds have become the dominant
owners of stock in the United States, and these
institutions are becoming more active in corporate
4. Financial intermediaries and middleman are active
participants in the U.S. Financial markets, explain the roles
of intermediaries and middlemen? What are their
5. What is the primary market? What is the secondary market?
How do they differ and work together?
6. The stock of ABC Corp., a new firm operating a chain of
sports betting parlors, has just been sold in an initial public
offering at a price of $15 per share. One week after this
offering, the stock has risen in value to $25. You believe the
stock will rise to $40 over the coming year.
i. You do not expect Tips to pay any dividends over the
ii. You require a rate of return on this stock of 18 percent.
iii. Do you believe this is a good investment at the current
price of $25? Show your calculations, either in excel or
financial calculator key strokes.