Question 1: You may have heard big business criticized for focusing on short-term performance at the expense of long-term results. Explain why a firm that strives to maximize stock prices should be less subject to an overemphasis on short-term results than one that simply maximizes profits.
Question 2: We claim that the goal of the firm is to maximize current market value. Could the following actions be consistent with that goal?
a) The firm adds a cost of living adjustment to the pensions of its retired employees.
b) The firm reduces its dividend payment, choosing to reinvest more of its earnings in the business.
c) The firm buys a corporate jet for its executives.
d) The firm drills for oil in a remote jungle. The chance of finding oil is only 1 in 5.
Question 3: Explain why each of the following may not be appropriate corporate goals
a) Increase market share:
b) Minimize costs:
c) Under price any competitors
d) Expand profits
Question 4: The authorized share capital of the Alfred Cake Company is 100,000 shares. The equity is currently shown in the company's books as follows {see attachment}
Common Stock ($1.00 par value) $60,000
Additional paid-in capital 10,000
Retained earnings 30,000
Common equity 100,000
Treasury stock (2,000 shares) 5,000
Net common equity 95,000
a. How many shares are issued?
b. How many are outstanding?
c. How many more shares can be issued without the approval of shareholders?