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2. Explain several dimensions of the shareholder-principal conflict with manager-agents known as the principal-agent problem. To mitigate agency problems between senior executives and shareholders, should the compensation committee of the board devote more to executive salary and bonus (cash compensation) or more to long-term incentives? Why? What role does each type of pay play in motivating managers? 3. Corporate profitability declined by 20 percent from 2008 to 2009. What performance percentage would you use to trigger executive bonuses for that year? Why? What issues would arise with hiring and retaining the best managers? 6. In the context of the shareholder wealth-maximization model of a firm, what is the expected impact of each of the following events on the value of the firm? Explain why. a. New foreign competitors enter the market. b. Strict pollution control requirements are enacted. c. A previously nonunion workforce votes to unionize. d. The rate of inflation increases substantially. e. A major technological breakthrough is achieved by the firm, reducing its costs of production.
1.For each of the determinants of demand in Equation 2.1, identify an example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the same for each of the determinants of supply in Equation 2.2. In each instance, would equilibrium market price increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf and Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries. 5. Two investments have the following expected returns (net present values) and standard deviation of returns: Project Expected Returns Standard Deviation A $50,000 $40,000 B $250,000 $125,000 Which one is riskier? Why? 6. The manager of the aerospace division of General Aeronautics has estimated the price it can charge for providing satellite launch services to commercial firms. Her most optimistic estimate (a price not expected to be exceeded more than 10 percent of the time) is $2 million. Her most pessimistic estimate (a lower price than this one is not expected more than 10 percent of the time) is $1 million. The expected value estimate is $1.5 million. The price distribution is believed to be approximately normal. a. What is the expected price? b. What is the standard deviation of the launch price? c. What is the probability of receiving a price less than $1.2 million?
Administrators at a university are considering to offer a summer seminar. It costs $3000 to reserve a room, hire an instructor, and bring in the machine.
A company uses two inputs to produce a final good. If the price of one of the inputs raise and price of the other remains the same
After seeing at the project and talking with few people that have been around the management for many years, you recognize that 10 percent cost of capital is not reflective of the firm's current cost of capital.
If a production function is given through the equation Q=12X+ 10x2- x3 where X= input and Q=output then provide the computation for average product.
Suppose that the risk free rate of return is 3% and the market portfolio on the capital market line (CML) has an expected return of 11 percent and a standard deviation of 14 percent.
Enpar manufactures a one type of engine part for an automotive manufacturer. It operates 2-plants, Plant A and Plant B, which have the following production functions:
The total monthly cost for marketing this product is composed of $3000 additional administrative expenses and $50 each unit for production and distribution costs.
Marty's Frozen Yogurt is a small shop that sells cups of frozen yogurt in university town. Marty have three frozen-yogurt machines.
The following table shows information for a simple production function. From the data in the table, calculate marginal and average products.
A European consortium has spent a considerable value of time and money making a new supersonic aircraft. The aircraft gets high marks on all performance measures except noise.
Suppose you are the manager of a company that produces output in two plants. The demand for your company's product is P = 78 - 15Q, where Q = Q1 + Q2.
If the market price of common stock of a real estate company is 6 million and the value of its debt is 4 million with a beta of 1.5 and the risk premium on the market is 6 percent and the treasury bill rate is 4 percent
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