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Finance & Markets Tutorial Questions

The document outlines questions for a tutorial on finance and financial markets, focusing on key concepts such as CEO compensation linked to performance, forms of business organization, and the long-term versus short-term goals of stockholder wealth maximization. It also addresses the basic areas of finance, types of firms, financial decisions made by managers, and the distinction between real and financial assets. Additionally, it discusses the agency problem, intrinsic value, and the importance of critical factors in corporate financial decision-making.

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hailinh41105
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11 views1 page

Finance & Markets Tutorial Questions

The document outlines questions for a tutorial on finance and financial markets, focusing on key concepts such as CEO compensation linked to performance, forms of business organization, and the long-term versus short-term goals of stockholder wealth maximization. It also addresses the basic areas of finance, types of firms, financial decisions made by managers, and the distinction between real and financial assets. Additionally, it discusses the agency problem, intrinsic value, and the importance of critical factors in corporate financial decision-making.

Uploaded by

hailinh41105
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

TUTORIAL 1 - INTRODUCTION TO FINANCE & FINANCIAL MARKETS

The following questions must be attempted before the tutorial class.

1. If a company’s board of directors wants management to maximize shareholder wealth,


should the CEO’s compensation be set as a fixed dollar amount, or should the
compensation depend on how well the firm performs? If it is to be based on
performance, how should performance be measured? Would it be easier to measure
performance by the growth rate in reported profits or the growth rate in the stock’s
intrinsic value? Which would be the better performance measure? Why?
2. What are the various forms of business organization? What are the advantages and
disadvantages of each?
3. Should stockholder wealth maximization be thought of as a long-term or a short-term
goal? For example, if one action increases a firm’s stock price from a current level of
$20 to $25 in 6 months and then to $30 in 5 years, but another action keeps the stock
at $20 for several years but then increases it to $40 in 5 years, which action would be
better? Think of some specific corporate actions that have these general tendencies.
4. What are the three basic areas in finance?
5. What are the three types of firms? What are advantages and disadvantages of each
type? Why do corporations dominate the economy?
6. What are the financial decisions made by a manager of a firm? Give two examples of
each type.
7. Distinguish between real assets and financial assets. Give two examples of each type.
8. What are the three critical factors in finance? Discuss the importance of these factors.
9. What is the primary objective of corporate financial decision making?
10. What is agency problem? Why do they exist within a corporation? How to mitigate
agency problems?
11. What is a firm’s intrinsic value? Its current stock price? Is the stock’s “true” long-run
value more closely related to its intrinsic value or to its current price?

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