1-8 The president of a large, publicly owned corporation should maximize

shareholders wealth or he risks losing his job. Many have argued that when only
a small percentage of the stock is owned by management shareholder wealth
maximization can take a back seat to any number of conflicting managerial
goals. Such factors as a compensation system based on management
performance (bonuses tied to profits, stock option plans) as well as the
possibility of being removed from office (voted out of office, an unfriendly tender
offer by another firm) serve to keep managements focus on stockholders
interests.
1-9 a. Corporate philanthropy is always a sticky issue, but it can be justified in
terms of helping to create a more attractive community that will make it easier
to hire a productive work force. This corporate philanthropy could be received by
stockholders negatively, especially those stockholders not living in its
headquarters city. Stockholders are interested in actions that maximize share
price, and if competing firms are not making similar contributions, the cost of
this philanthropy has to be borne by someone--the stockholders. Thus, stock
price could decrease.
b. Companies must make investments in the current period in order to generate
future cash flows. Stockholders should be aware of this, and assuming a correct
analysis has been performed, they should react positively to the decision. The
Mexican plant is in this category. Capital budgeting is covered in depth in Part 4
of the text. Assuming that the correct capital budgeting analysis has been made,
the stock price should increase in the future.
c. Provided that the rate of return on assets exceeds the interest rate on debt,
greater use of debt will raise the expected rate of return on stockholders equity.
Also, the interest on debt is tax deductible and this provides a further
advantage. However, (1) greater use of debt will have a negative impact on the
stockholders if the companys return on assets falls below the cost of debt, and
(2) increased use of debt increases the chances of going bankrupt. The effects of
debt usage, called financial leverage, are spelled out in detail in the chapter
titled, Capital Structure and Leverage.
d. Today (2003), nuclear generation of electricity is regarded as being quite risky.
If the company has a heavy investment in nuclear generators, its risk will be
high, and its stock price will be adversely affected unless its costs are much
lower, hence its profits are much higher.

e. The company will be retaining more earnings, so its growth rate should rise,
which should increase its stock price. The decline in dividends, however, will pull
the stock price down. It is unclear whether the net effect on its stock will be an
increase or a decrease in its price, but the change will depend on whether
stockholders prefer dividends or increased growth

1-10 The executive wants to demonstrate strong performance in a short period of

time, which can be demonstrated either through improved earnings and/or a
higher stock price. The current board of directors is well served if the manager
works to increase the stock price; however, the board is not well served if the
manager takes short-run actions that bump up short-run earnings at the expense
of long-run profitability and the companys stock price. Consequently, the board
may want to rely more on stock options and less on performance shares that are
tied to accounting performance.
1-11 As the stock market becomes more volatile, the link between the stock
price and the management ability of senior executives is weakened. Therefore, in
this environment companies may choose to de-emphasize the awarding of stock
and stock options and rely more on bonuses and performance shares that are
tied to other performance measures besides the companys stock price.
Moreover, in this environment it may be harder to attract or retain top talent if
the compensation is tied too much to the companys stock price.
1-12 a. No, TIAA-CREF is not an ordinary shareholder. Because it is one of the
largest institutional shareholders in the United States and it controls nearly $280
billion in pension funds, its voice carries a lot of weight. This shareholder in
effect consists of many individual shareholders whose pensions are invested with
this group.
b. The owners of TIAA-CREF are the individual teachers whose pensions are
invested with this group.
c. For TIAA-CREF to be effective in wielding its weight, it must act as a
coordinated unit. In order to do this, the funds managers should solicit from the
individual shareholders their votes on the funds practices, and from those
votes act on the majoritys wishes. In so doing, the individual teachers whose
pensions are invested in the fund have in effect determined the funds voting
practices.

1-2 Presiden besar, milik publik perusahaan harus memaksimalkan kekayaan

pemegang saham atau dia berisiko kehilangan pekerjaannya. Banyak yang
berpendapat bahwa ketika hanya sebagian kecil dari saham yang dimiliki oleh
pemegang saham manajemen kekayaan maksimalisasi dapat mengambil kursi
belakang untuk sejumlah tujuan manajerial yang saling bertentangan. Faktorfaktor seperti sistem kompensasi berdasarkan kinerja manajemen (bonus terkait
dengan keuntungan, rencana saham option) serta kemungkinan yang dihapus
dari kantor (sebagai keluar dari kantor, sebuah penawaran tender tidak ramah
oleh perusahaan lain) berfungsi untuk menjaga manajemen fokus pada
kepentingan pemegang saham
1-3 a. Filantropi perusahaan selalu masalah lengket, tetapi dapat dibenarkan
dalam hal membantu menciptakan masyarakat yang lebih menarik yang akan
membuat lebih mudah untuk menyewa tenaga kerja yang produktif. Filantropi
perusahaan ini bisa diterima oleh pemegang saham negatif, terutama mereka
pemegang saham tidak tinggal di kota kantor pusatnya. Pemegang saham
tertarik tindakan yang memaksimalkan harga saham, dan jika perusahaan yang
bersaing tidak membuat kontribusi yang sama, "biaya" filantropi ini harus
ditanggung oleh seseorang - pemegang saham. Dengan demikian, harga saham
bisa
menurun.
b. Perusahaan harus melakukan investasi pada periode berjalan untuk
menghasilkan arus kas masa depan. Pemegang saham harus menyadari hal ini,
dan dengan asumsi analisis yang benar telah dilakukan, mereka harus bereaksi
positif terhadap keputusan tersebut. Meksiko tanaman dalam kategori ini.
Penganggaran modal yang dibahas secara mendalam di Bagian 4 dari teks.
Dengan asumsi bahwa analisis penganggaran modal yang benar telah dibuat,
harga
saham
harus
meningkatkan
di
masa
depan.
c. Asalkan tingkat pengembalian aset melebihi tingkat bunga utang, penggunaan
yang lebih besar dari utang akan meningkatkan tingkat pengembalian yang
diharapkan pada ekuitas. Juga, bunga utang adalah dikurangkan dari pajak dan
ini memberikan advantage lanjut. Namun, (1) penggunaan lebih besar dari
utang akan berdampak negatif pada pemegang saham jika pengembalian
perusahaan pada aset jatuh di bawah biaya utang, dan (2) peningkatan
penggunaan utang meningkatkan kemungkinan bangkrut. Efek dari penggunaan
utang, yang disebut "leverage keuangan," dijabarkan secara rinci dalam bab
yang
berjudul,
"Struktur
Modal
dan
leverage."
d. Hari ini (2003), generasi nuklir listrik dianggap sebagai cukup berisiko. Jika
perusahaan memiliki investasi besar dalam generator nuklir, risiko akan tinggi,
dan harga sahamnya akan terpengaruh kecuali biaya yang jauh lebih rendah,
maka
keuntungannya
jauh
lebih
tinggi.
e. Perusahaan akan mempertahankan pendapatan yang lebih, sehingga tingkat
pertumbuhannya harus naik, yang harus meningkatkan harga sahamnya.
Penurunan dividen, bagaimanapun, akan menarik harga saham turun. Tidak jelas
apakah efek bersih pada sahamnya akan meningkat atau penurunan harga,
tetapi perubahan akan tergantung pada apakah pemegang saham lebih memilih
dividen atau peningkatan pertumbuhan