Solutions Income Statement and Pearson Education Essay Example

Solutions: Income Statement and Pearson Education Paper As the manager of an phone applications developer, you will make three types of financial decisions. i. You Will make investment decisions such as determining which type of phone application projects will offer your company a positive NAP and therefore your company should develop. Ii. YOLK Will make the decision on how to fund your phone application investments and what mix of debt and equity your company will have. Iii. You will be responsible for the cash management of your company, ensuring that your company has the necessary funds to make investments, pay interest on loans, and pay your employees. Corporate managers favor for the owners of the corporation, Consequently, they should make decisions that are in the interests of the owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated to act this way? Shareholders can do the tooling. i. Ensure that employees are paid with coronary stock and/or stock options. Ii, Ensure that underperforming managers are fired. Iii. Write contracts that ensure that the interests of the managers and shareholders are closely aligned, iv. Mount hostile takeovers. 1-10. Suppose you are considering renting an apartment. You, the renter, can be viewed as an agent while the company that owns the apartment can be viewed as the principal. What principalities conflicts do you anticipate? Suppose, instead, that you favor for the apartment company. What features would you put into the lease agreement that would give the renter incentives to take good care of the apartment? The agent (renter) will not take the same care of the apartment as the principal (owner), because the renter does not share in the costs of fixing damage to the apartment. We will write a custom essay sample on Solutions: Income Statement and Pearson Education specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Solutions: Income Statement and Pearson Education specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Solutions: Income Statement and Pearson Education specifically for you FOR ONLY $16.38 $13.9/page Hire Writer To mitigate this problem, having the renter pay a deposit should motivate the renter to keep damages to a minimum. The deposit forces the renter to share in the costs of fixing any problems that are caused by the renter. You are the CEO of a company and you are considering entering into an agreement to have your company buy another company, You think the price might be too high, but you will be the CEO of the combined, much larger company, You know that when the company gets bigger, your pay and prestige will increase. What is the nature tooth agency conflict here and how is it related to ethical considerations? There is an ethical dilemma when the CEO of a firm has opposite incentives to those of the shareholders. In this case, o (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because your pay and prestige will improve. Are hostile takeovers necessarily bad for firms or their investors? Explain. No. They are a way to discipline managers who are not working in the interests of shareholders. What is the difference between a public and private corporation? The shares of a public corporation are traded on an exchange (or over the counter in an electronic trading system) while the shares Of a private corporation are not traded on a public exchange. Explain why the bid-ask spread s a transaction cost. Investors always buy at the ask and sell at the bid. Since ask prices always exceed bid prices, investors lose this difference. It is one of the costs Of transacting. Since the market makers take the Other side Of the trade, they make this difference. -12. 1-13. -14. 02011 Pearson Education, Inc. Publishing as Prentice Hall Beer/Demeanor ; Corporate Finance, Second Edition I-IS. The following quote on Yahoo! Stock appeared on February 11, 2009, on Yahoo! Finance: If you wanted to buy Yahoo, what price would you pay? How much would you receive if you wanted to sell Yahoo!? You would buy at $12. 54 and sell for $12. 53. 02011 Pearson Education, Inc. Publishing as Prentice Hall Ch apter 2 Introduction to Financial Statement Analysis 2-1. What four financial statements can be found in a firms 10-K filing? What checks are there on the accuracy of these statements? In a firms 10-K filing, four financial statements can be found: the balance sheet, the income statement, the statement of cash flows, and the statement of stockholders equity. Financial statements in form ASK are required to be audited by a neutral third party, who checks and ensures that the financial statements are prepared according to GAP and that the information contained is reliable. 2-2. Who reads financial statements? List at least three different categories of people, For each category, provide an example tooth type to information they might be interested in and discuss why. Users of financial statements include present and potential investors, financial analysts, and other interested outside parties (such as lenders, suppliers and other trade creditors, and customers). V-uncial managers within the firm also use the financial statements when making financial decisions, Investors, Investors are concerned with the risk inherent in ND return provided by their investments. Bondholders use the firms financial statements to assess the ability of the company to make its debt Stockholders use the statements to assess the firms profitability and ability to make future dividend payments. Financial analysts. Financial analysts gather financial information, analyze it, and make recommendations. They read financial statements to determine a firms value and project future earnings, so that they can provide guidance to businesses and individuals to help them With their investment decisions. Managers. Managers use financial statement o look at trends in their own business, and to compare their own results with that of competitors. 23. Find the most recent financial statements for Cutbacks corporation (SUBS) using the following sources: a. From the companys Web site www. V. Trucks. Com (Hint : Search for investor relations. ) b. From the SEC Web site femmes. Gob. (Hint : Search for company filings in the EDGAR database. ) c. From the Yahoo! Finance Web site http://financially. Com. D. From at least one other source. (Hint : Enter SUBS ASK at mow. Google. Com. ) Each method will help find the same SEC filings. Yahoo! Finance also provides some analysis such as harts and key statistics. Beer/Demeanor ; Corporate Finance, Second Edition 24 Consider the following potential events that might have occurred to Global Conglomerate on December 30, 2009. For each one, indicate which line items in Globally balance sheet would be affected and by how much. Also indicate the change to Globally book value of equity. A. C. Global used $20 million of its available cash to repay $20 million Of its long-term debt Global used AS million in cash and $5 million in new long-term debt to purchase a $10 million building. B. A warehouse fire destroyed $5 million worth Of uninsured inventory. . A large customer owing 53 million for products it already received declared bankruptcy, leaving no possibility that Global would ever receive payment. E. . A. B. C. Globally engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50%, A key competitor announces a radical new pricing policy that will drastically undercut Globally prices. Long- term liabilities would decrease by $20 million, and cash would decrease by the same amount. The book value of equity would be unchanged. Inventory would decrease by million, a s would the book value of equity. Long-term assets old increase by $10 million, cash would decrease by $5 million, and longer liabilities would increase by AS million.