Q1) What are some of the problems involved in the use of profit maximization as the goal of the firm? How does the goal of maximization of shareholder wealth deal with those problems? Q2

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Q1) What are some of the problems involved in the use of profit maximization as the goal of the firm? How does the goal of maximization of shareholder wealth deal with those problems?

Q2. Firms often involve themselves in projects that do not result directly in profits; for example, Maxis and Magnum frequently support public television broadcasts. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not?

Q3. Maximizing share price does not make sense because investors focus on short-term results rather than long-term consequences. Give your comment.

 Q4. Describe the primary role of a Financial Manager within a firm.

Q5. What is agency cost? Provide two examples of agency costs.

Q6. The end-of-year parties at Yearling, Inc., are known for their extravagance. Management provides the best food and entertainment to thank the employees for their hard work.  During the planning for this year’s bash, a disagreement broke out between the treasurer’s staff and the controller’s staff. The treasurer’s staff contended that the firm was running low on cash and might have trouble paying its bills over the coming months; they requested that cuts be made to the budget for the party. The controller’s staff believed that any cuts were unwarranted, as the firm continued to be very profitable. Can both sides be correct?  Explain your answer.

Q7. Recently, some branches of Donut Shop, Inc., have dropped the practice of allowing employees to accept tips. Customers who once said, “Keep the change,” now have to get used to waiting for their nickels. Management even instituted a policy of requiring that the change be thrown out if a customer drives off without it. As a frequent customer who gets coffee and doughnuts for the office, you notice that the lines are longer and that more mistakes are being made in your order. Explain why tips could be viewed as similar to stock options and why the delays and incorrect orders could represent a case of agency cost. If tips are gone forever, how could Donut Shop reduce these agency costs?