Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 14, Problem 23P
a.
Summary Introduction
To determine: The share price of the stocks.
Introduction:
Share price: The current share price is also known market value of single share which is currently being sold or bought in the market; basically, it is price that a security is last traded.
In a company, shares are a unit of ownership interest. The individual who owns shares are called as shareholders. Shares can be classified into equity
b.
Summary Introduction
To determine: The cost of the plan for ZE and the reason why issuing equity is expensive.
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Suppose the compensation committee for a corporation is preparing to hire a new CEO and debating which of two pay packages to offer. Package A includes an annual salary of $1 million plus 1000 shares of stock. Package B also has a salary of $1 million, but has 10,000 options to purchase the company at its current price of $50.
a) Draw a graph showing the relationship between the CEO’s total compensation (vertical axis) and the stock price (horizontal axis) for the two pay schemes. Clearly label the two compensation methods in your graph.
b) Discuss how a switch from the stock to stock option plan would alter CEO behavior.
c) Discuss how a switch from the stock to stock option plan would affect the type of CEO that would be willing to accept the job.
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On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved.
Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous
severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume
the company has an expected return equal to the market return.
Note: A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Do
not round intermediate calculations. Round your answers to 1 decimal place.
Market
Return (%) Return (%)
Company
Date
November 7
0.8
0.4
November 8
0.6
0.4
November 9
-0.5
-0.3
November 10
-0.6
-0.5
November 11
1.6
1.0
November 14
-0.4
2.1
November 15
0.1
0.1
November 16
0.9
1.0
November 17
0.5
0.6
November 18
-0.5
0.0
November 21
0.6
0.2
Days from
Announcement
-5
-4
-3
-2
-1
0
1
2
3
4
5
Daily Abnormal
Return
Cumulative Abnormal…
Chapter 14 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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