PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 1, Problem 9PS
Summary Introduction
To discuss: The explanation for the ethical issues of Company GS.
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Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear inevery case? Provide detailed explanation. a. Short-term interest rates increase unexpectedly.b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.c. Oil prices unexpectedly decline.d. A manufacturer loses a multimillion-dollar product liability suit.
Give typing answer with explanation and conclusion
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Chapter 1 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 1.A - Prob. 1QCh. 1 - Investment and financing decisions Read the...Ch. 1 - Investment and financing decisions Which of the...Ch. 1 - Prob. 3PSCh. 1 - Prob. 4PSCh. 1 - Prob. 5PSCh. 1 - Corporate goals We can imagine the financial...Ch. 1 - Maximizing shareholder value Ms. Espinoza is...Ch. 1 - Opportunity cost of capital FH Corp. continues to...Ch. 1 - Prob. 9PS
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- Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 Explain credit risk from an individual and a loan portfolio management perspective and discuss how it relates to this case.arrow_forward3. Consider the following two events: (a) a bank loses $1 billion from an unexpected lawsuit relating to its transactions with a counterparty and (b) an insurance company loses $1 billion because of an unexpected hurricane in Texas. Suppose that you have the same investment in shares issued by both the bank and the insurance company. Which loss are you more concerned about? a) The insurance company’s loss b) The bank lossc) Both lossesd) None of the lossesarrow_forwardWhich of the following is NOT true? swaps (CDS) and collateralized debt obligations (CDO), later identified as two instruments that played a major role in the market failure of 2008. The Dodd Frank Act bans risky proprietary trading activities Under the Dodd Frank Act, a large financial institution can hold lower capital reserves because it has better reputation than a small financial institution. Under the Dodd Frank Act, a central bank will not tolerate TBTF and will fail large banks in a future crisis. The Dodd Frank Act provides finance customers protection.arrow_forward
- Too Big to Fail - During the recession of 2008, we were introduced to this new term. A large bank or financial institution that engages in illegal activity many are not severely punished or have its officials charged with criminal activity. Why? What is the reason?arrow_forwardThe fallout from the financial crisis of 2008 included an overheated real estate market, fueled by home purchase incentives, poor lending practices, and securitization through high-risk, mortgage-backed securities, which led to a near collapse of global capital markets. As a consequence, many have argued that if the financial institutions had been required to report their loans (and loan-backed investments) at fair value instead of cost, large losses would have been reported earlier. This would have signaled regulators to the problems in the mortgage markets and therefore minimized the losses to U.S. taxpayers. Instructions Explain how reported accounting numbers might affect an individual’s perceptions and actions. Cite two examples.arrow_forwardIn 1996, allegations were made against Moody’s that it was issuing ratings on bonds it had not been hired to rate, in order to pressure issuers to pay for their service. How has the increasing availability and use of the internet impacted the ability of stock traders to act unethically?arrow_forward
- Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 A. Explain credit risk from an individual and a loan portfolio management perspective and discuss how they relate to this case. B. Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of a risk management model. C. Discuss how this model can mitigate future credit risk issues for Washington Mutual. The following will apply: • The document should be presented in a format that covers all the requirements above and in a format that is presentable. • Ensure that you write each question then write your answer that correspond below each question. Your essay should also include an introduction and a conclusion.arrow_forwardKaren Johnson, CFO for Raucous Roasters (RR), a specialty coffee manufacturer, is rethinking her company’s working capital policy in light of a recent scare she faced when RR’s corporate banker, citing a nationwide credit crunch, balked at renewing RR’s line of credit. Had the line of credit not been renewed, RR would not have been able to make payroll, potentially forcing the company out of business. Although the line of credit was ultimately renewed, the scare has forced Johnson to examine carefully each component of RR’s working capital to make sure it is needed, with the goal of determining whether the line of credit can be eliminated entirely. In addition to (possibly) freeing RR from the need for a line of credit, Johnson is well aware that reducing working capital will improve free cash flow. Historically, RR has done little to examine working capital, mainly because of poor communication among business functions. In the past, the production manager resisted Johnson’s efforts to question his holdings of raw materials, the marketing manager resisted questions about finished goods, the sales staff resisted questions about credit policy (which affects accounts receivable), and the treasurer did not want to talk about the cash and securities balances. However, with the recent credit scare, this resistance has become unacceptable and Johnson has undertaken a company-wide examination of cash, marketable securities, inventory, and accounts receivable levels. Johnson also knows that decisions about working capital cannot be made in a vacuum. For example, if inventories could be lowered without adversely affecting operations, then less capital would be required, and free cash flow would increase. However, lower raw materials inventories might lead to production slowdowns and higher costs, and lower finished goods inventories might lead to stockouts and loss of sales. So, before inventories are changed, it will be necessary to study operating as well as financial effects. The situation is the same with regard to cash and receivables. Johnson has begun her investigation by collecting the ratios shown here. (The partial cash budget shown after the ratios is used later in this mini case.) Johnson plans to use the preceding ratios as the starting point for discussions with RR’s operating team. Based on the data, does RR seem to be following a relaxed, moderate, or restricted current asset usage policy?arrow_forward
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