Chapter 2 Answers:
1. What is the shareholders return?
(SP – PP +
Div) / PP, thus (60 – 42 + 0) / 42 = 0.4286 OR 42.86%
2. Goals of corporate governance:
1. Shareholder’s interests should take precedence over stakeholders.
2. Board should oversee management.
3. Equitable treatment of shareholders.
4. Formally acknowledge interests of stakeholders.
5. Public reporting of firm.
6. SWM vs SCM:
1. SWM is the maximization of shareholders return.
2. SCM is the corporate maximization of shareholders and
stakeholders, such as employees, society, etc.
3. Sarbanes-Oxley Act requirements:
1. Financial statements must be vouched for by the CEO and
CFO.
2. Corporate boards must have audit and compensation
committees drawn from independent (outside) directors.
3. Companies are prohibited from making loans to corporate
officers and directors.
4. Companies must test their internal financial controls against
fraud.
5. Corporate governance:
1. Communication between all groups of people in a
company, such as auditors, SEC, regulators,
shareholders, etc.
1. Operational financial objectives of MNEs:
1. Maximization of consolidated after-tax income.
2. Minimization of the firm’s effective global tax burden.
3. Correct positioning of the firm’s income, cash flows, and available funds as
to country and currency.
4. Public held companies may be:
1. Wholly state-owned, not for profit but for civil services.
2. Partially publicly traded with shareholders.