...Chapter 1 The Financial Manager and the Firm Learning Objectives 1. Identify the key financial decisions facing the financial manager of any business firm. 2. Identify the basic forms of business organization used in the United States, and review their respective strengths and weaknesses. 3. Describe the typical organization of the financial function in a large corporation. 4. Explain why maximizing the current value of the firm’s stock price is the appropriate goal for management. 5. Discuss how agency conflicts affect the goal of maximizing stockholder wealth. 6. Explain why ethics is an appropriate topic in the study of corporate finance. I. Chapter Outline 1.1 The Role of the Financial Manager A. It’s All about Cash Flows • The financial manager is responsible for making decisions that are in the best interest of the firm’s owners. • A firm generates cash flows by selling the goods and services produced by its productive assets and human capital. After meeting its obligations, the firm can pay the remaining cash, called residual cash flows, to the owners as a cash dividend, or it can keep the money and reinvest the cash in the business. • A firm is unprofitable when it fails to generate sufficient cash flows to pay operating expenses, creditors, and taxes. Firms that are unprofitable over time will be forced into bankruptcy by their creditors. In bankruptcy, the company will be reorganized, or the company’s...
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...Q1. Is maximizing the firm’s profit the only way to maximizing shareholder wealth? Should the firm’s management do anything and everything to maximize shareholder wealth? Suggested Solution: Minimizing costs can also be one of the goals of corporations. Other firms may choose to maximize market share, hoping that these will eventually increase the total profits in the future. Ultimately, the choices financial managers make should maximize shareholder wealth, which is achieved by maximizing the stock price. While the managers should do their best in maximizing the shareholders’ wealth, they should ensure that their behavior is ethical. Ultimately, the owners will only benefit if the business is operated within the legal and ethical limits. Q2. What is a limited partnership? Briefly explain what are the advantages and disadvantages of being a general partner and a limited partner. Suggested Solution: A Limited Partnership (LP) is a vehicle for doing business and is a subset of partnership. It is a partnership consisting of a minimum of two partners, with at least one general partner and at least one limited partner. An LP does not have a separate legal entity from the partners i.e. it cannot sue or be sued or own property in its own name. A general partner is liable for all debts and obligations of the LP. This is unfavorable to the GP but he or she has control over the operations of the business. The advantage...
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...Competition 5 Strength 5 Weakness 5 Opportunity 5 Threats 5 Problem and Definition 6 Problem 1: Infrastructure 6 Problem 1.1 Cabling 6 Problem 1.2 Disaster Recovery 6 Problem 1.3 Equipment Life Cycles 6 Problem 2: Security 7 Problem 3: No Internal VoIP 7 Problem 4: Inability to Switch to Telecommute Employees 7 Project Overview 8 Goals & Objectives 8 Assumptions 9 Identification of Issues & Requirements 10 Findings and Recommendations 14 Budget Requirements 14 Recommended Approach – Telecommute 14 Alternative Approach 1 – High Availability (On-Site) 15 Alternative Approach 2 – Telecommute & Cloud 16 Network Design 17 Recommended Approach – Telecommute 18 Alternative Approaches 19 Alternative Approach 1 – High Availability (On-Site) 19 Alternative Approach 2 – Telecommute & Cloud 20 Implementation Plan 20 Project Plan 21 Milestones and Measurements 21 Implementation Strategy 22 Works Cited 23 Appendix A 24 Recommended Approach – Telecommute 24 Alternative Approach 1 – High Availability (On-Site) 27 Alternative Approach 2 – Telecommute & Cloud 30 Executive Summary Travel Agency, Inc. is a large travel firm that was founded in 1999. They pride themselves on personal relationships along with fast and accurate customer service. Travel Agency, Inc. currently has fives locations in LA, New York, Atlanta, Dallas and Chicago. Travel Agency, Inc. is looking to cut down on operating costs and focus on...
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...operational costs is the only solution. Background In an industry saturated with aggressive competition, it is vital for any business to take strategic measures to ensure that the business sustains itself into the future. ASC has proven itself to be the rising star in the sportswear market by making its mission "To be a leading provider of athlete-oriented apparel through innovation, design, and passion." Since ASC was founded in 2009; the company has managed an aggressive acquisition of market share. The steady increase for product demand has enabled the company to start expanding its enterprise to meet the market demand and remain competitive. ASC has decided it is imperative to generate the capital in anticipation of this expansion. This case study reviews the current condition of the sportswear industry and identifies solutions to increase profit margins for ASC by restructuring operational expenses. An examination of the sportswear market will identify the sectors with the most potential for long-term revenue generation. With the market data, a strategic approach can be implemented to adjust the operational processes with the goal of achieving effective increases in the profit margins. This report will focus on the central issues of streamlining the operational processes on profit margins, productivity, and the workforce in order to facilitate the long-term sustainability and competitiveness of ASC. Through this study, the most profit-sustainable market sector is...
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...Case 3 Texas Instruments October 17, 2012 1. Texas Instruments has held their position in the marketplace for government agencies and educational research facilities. Texas Instruments has never marketed any of their products in the retail marketplace. Texas Instruments had extreme difficulty competing in the emerging laser printer market, because of their long-term business with fortune 500 companies and government owned agencies. 2. Texas Instruments used the pull strategy to lure new customers to buy their laser printers, while pricing their laser printers below two thirds of the competitors’ laser printers. In the end, there was not enough product differentiation of Texas Instrument’s laser printers to make an impact in the emerging laser printer market. 3. One solution to the problem is to sign contracts with an original equipment manufacturer company like Compaq computers. Another solution to this problem would be to spend more money on advertising campaigns and promotion to office supply retailers to make a real effort using the pull strategy. One more solution to this problem could be to scale down production on laser printers and/or trying to sell that division of the company. 4. These solutions will be judged by the following criterion: Cost to implement Acceptability to employees Acceptability to shareholders 5. By signing contracts with an original equipment manufacturer, Texas Instruments would not have their name on the products, but companies...
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...of Business and Management; Vol. 10, No. 1; 2015 ISSN 1833-3850 E-ISSN 1833-8119 Published by Canadian Center of Science and Education The Agency Problem: Measures for Its Overcoming Meri Boshkoska1 1 Faculty Economics-Prilep, Republic of Macedonia Correspondence: Meri Boshkoska, Faculty of Economics-Prilep, Republic of Macedonia. E-mail: meribb@yahoo.com Received: September 19, 2014 Accepted: November 4, 2014 Online Published: December 20, 2014 doi:10.5539/ijbm.v10n1p204 URL: http://dx.doi.org/10.5539/ijbm.v10n1p204 Abstract As the corporative company type emerged, the two functions of ownership and management are separated. In the companies with a large number of employees the managers are the ones that manage the capital in the best interest of the shareholders. In this type of companies, conflict of interest may occur between the managers and the shareholders. Having more information about the work of the company, managers may use it in making decisions for their own benefit, which on the other hand cannot be as beneficial for the shareholders. Conflict of interest between managers and shareholders leads to so-called agency problem. There are different ways by which shareholders can control the operations of management. Some of the measures that can be used to resolve and prevent this problem are subject of analysis in this paper. Keywords: management, ownership, shareholders, conflict of interest, asymmetrical information, corporate ...
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...Tolley Agencies Case summary: • Were the Biggest electrical manufacturers in New Zealand. • Based in Wellington • Two major segments • Tolley Agencies – a division of the Tolley group – was not performing well. • Strategies were then implemented to solve the issue. SWOT STRENGTHS: 1. Control over majority of operating market. 2. Wide Product Range. 3. Strong Relationships with key customers. 4. The introduction of CEE standards to reach a wider customer base. WEAKNESSES: 1. Certain products are not meeting the international CEE Standards. 2. High Costs involved with research and development. 3. Reliant on overseas imports for sales. 4.Small Market Segment/Population. OPPORTUNITIES: 1. New emerging market. 2. Meeting or exceeding customer expectations. 3. New channels of distribution. 4.Those concerned about family safety more likely to purchase product. THREATS: 1. Rising Electrical Costs. 2. New Competitors in market. 3. Consumers become more environmentally friendly forcing product innovations. 4. Product growth relies on government changing it’s views on the safety standards. Problem • New Zealand had long been using products originating in Britain but now being manufactured in N.Z. • Division of Tolley Agencies marketing industrial plugs and sockets not performing well – introduction of new products manufactured in Germany • Inferior – do not comply with international CEE standards, but meeting N.Z. safety and industry regulations...
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...Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs...
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...in Show Pet Foods is a major producer in the of dog food in the United States for show-dog kennels. The company is now a supplier of high quality dog food for show dogs called Show Circuit. Executives are now trying to find a way to enter into the retail branded dog food market in Boston with the help of Marketing Momentum Unlimited. Due to the high quality nature of their product, the market development strategy would introduce Show Circuit in frozen packaging. The fee for the modified 15-ounce plastic tub of frozen dog food in a case of 12 was priced at $7.87 per case. Marketing Momentum Unlimited showed their recommended plan to the executives, which left many during the presentation to ask “Will this program establish a foothold in the market for Show Circuit”? The cost of the plan will be some where around $500,000 to $700,000, not including slotting fees. Everyone recognizes that Show Circuit is among the highest of quality and costliest dog foods to prepare. The company plans to enter the market during a period where only half of the dogs in the U.S. are fed prepared dog food. Dog sales are expected to rise as people seek companionship, which means they will spend money on quality products. The market development strategy for distribution purposes focuses on supermarkets, which represent 36% of total dog food sales. The offering of the three major supermarket competitors focuses solely on dry, canned, and treats with all offered in one section. The difficulty...
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...Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776) Keywords: Agency costs...
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...Journal of Financial Economics 3 (1976) 305-360. Q North-Holland Publishing Company THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING* University of Rochester, Rochester, NY 14627, U.S.A. Received January 1976, revised version received July 1976 This paper integrates elements from the theory of agency. the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears these costs and why, and investigate the Pareto optirnality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing tht- creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frcqucntly watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give thcmsclvcs a dispensation from...
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...Chapter 1 Competitive advantage: is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Sources of competitive advantage: 1.Structural Perspective “Higher profits result from better positioning” –Rivalry restraint, structural barriers to competition. 2.Resource/Capability Perspective “Higher profits result from unique resources and superior capability” –Resource/competence-based competition, rare, valuable, inimitable, non-substitutable .3.Information Perspective “Higher profits result from superior information”–Information asymmetry, adverse selection, moral hazard 4.Commitment Perspective “Higher profits result from specificity and timing” –Asset-specificity (correct governance), first mover advantage (correct strategy) 5.Connectivity Perspective “Higher profits result from network structure and corporate ties between businesses”–Alliances, dense network, structural holes Strategic Management Process •Strategic Analysis–Goals and objectives, external environment, internal environment, intellectual capital •Strategic Formulation–Business-level strategy, corporate-level strategy, international strategy, new economy •Strategic Formulation–Strategic control, corporate governance, organizational design Chapter 2 SWOT Analysis: •Strength •Weaknesses •Opportunities •Threats Porter’s Five Forces Model of Industry Competition: 1.Threat of new entrants:...
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...Chapter 1 Scope and Nature of Managerial Finance Learning objectives of this chapter: • Differentiate different forms of business • Understand financial management and its roles • Understand the responsibilities of financial staffs • Understand agency problems and its solution Sole Proprietorships & Partnerships Advantages ◦ Ease of formation ◦ Subject to few regulations ◦ No corporate income taxes Disadvantages ◦ Difficult to raise capital ◦ Unlimited liability ◦ Limited life 1-2 Corporation Advantages ◦ ◦ ◦ ◦ Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages ◦ Double taxation ◦ Cost of set-up and report filing 1-3 Different Type of Businesses Sole Proprietorship Who owns the business? Are managers and owners separate? What is the owner's liability? Are the owner and business taxed separately? The manager Partnership Partners Corporation Stockholders No No Usually Unlimited Unlimited Limited No No Yes Introduction to Corporation/Firm Profit seeking organisations aim to maximise shareholders’ wealth in the form of: ◦ Dividends ◦ Capital appreciation To achieve this, organisations must invest in projects that yield rates of return higher than the cost of financing those projects and better than competition financial objectives The Finance Function The finance function must plan the courses of action (i.e. the financial strategies)...
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...Marketing Plan Marketing Management Contents Introduction 3 Environmental Analysis 3 The Marketing Environment 3 Target Markets. 5 Current Marketing Objectives and Performance. 5 SWOT Analysis 6 Strengths 6 Weaknesses 7 Opportunities 7 Threats 8 Matching Strengths to Opportunities/Converting Weaknesses and Threats. 8 Marketing Objectives 8 Marketing Strategies 10 Target Market(s) 10 Marketing Mix 10 References 12 Introduction ICC Innovation, LLC is one of the companies that offer unique reporting services to the customer and companies. ICC Innovation offer direct access to information gathered from top 3 nationwide credit report agencies such as Experian, Equifax, TransUnion and their partners. Uniqueness of that service that ICC Innovation offer not only credit report information, but also offer access to consumer report and identity verification information. ICC Innovation focused on internet solution for businesses in financial area for companies like financial institutes, banks, mortgage and insurance companies etc. As a small company with fewer than ten full-time employees and a host of freelance and part-time help, ICC Innovation, LLC is faced with strong competition in the category from larger credit report agencies and companies that offer similar services who, in recent years, have increased their advertising and PR budgets. Environmental Analysis ICC Innovation, LLC is a privately-held company established in 2009. Of the...
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...dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so. CUSTOMER PSYCHOLOGY……HOW IMPORTANT FOR A MARKETER TO STUDY????? Companies use marketing to promote and sell their products or services, and consumer behavior is how consumers act and respond in the retail environment. In order for a company to create a strong marketing campaign, it is important to understand how and to what the consumer will respond. This relationship between marketing and consumer behavior involves studies, focus groups, psychological analyses and other methods of studying the market for a particular product or service. Understanding consumer behavior is critical for marketing any product or service successfully. When a company can understand why people buy what they buy and the reasons behind their decisions as consumers, the company can create a marketing campaign that specifically addresses those elements of the purchasing decision. Not all products appeal to all people; the key for...
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