1. AGENCY PROBLEMS Who owns a corporation?

| March 14, 2016

1. AGENCY PROBLEMS

Who owns a corporation? Describe the process whereby the owners control the firm’s management. Describe the main reason why an agency relationship exists in the corporate form of organization. In this context, describe the types of problems that can arise.

2. ENTERPRISE VALUE

A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly of interest to potential purchasers of the firm. Why?

3. CURRENT RATIO

Explain what it means for a firm to have a current ratio of .50. Would the firm be better off with a current ratio of 1.50? What if it were 15.0? Explain your answers.

4. SALES FORECASTS

Why do you think most long term financial planning begins with sales forecasts? Stated differently, why are future sales the key input?

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