Problem 1: Why does it make sense that the right to residual income and control go together? If theey are separated, how does this affect the value of a claim to residual income? What are the implication for the equity market?
Problem 2: The whole of the Industrial Revolution in the United Kingdom could have been financed by any one of several existing private fortunes. New industries wereunable to find finance, even at rates exceeding 20%, when land-connected industries (agriculture, mining, brewing and milling) wereable to command large amounts of capital with rates of return at or below zero.â? â?" M. M. Postan
A. Explain how the foregoing quotation describes an example of the free cash flow problem.
B. How does the problem of free chas flow affect the efficiency of the economy?
C. How does the problem of free cash flow affect the adaptability of the economy?
D. Given the difficulty of financing the new industries, an observer might have argued that the United Kingdom was suffering from too little saving and consequently too little investment. Would you agree?