Forms of Business   What are the three basic legal forms of organizing a business? What are the advantages and disadvantages of each? What business form do most start-up companies take? Why?

Goal of Financial Management   What goal should always motivate the actions of the firm's financial manager?

Agency Problems   Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?

Not-for-Profit Firm Goals   Suppose you were the financial manager of a not-for-profit business (a not-for-profit hospital, perhaps). What kinds of goals do you think would be appropriate?

Goal of the Firm   Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.

Ethics and Firm Goals   Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fit in this framework, or are they essentially ignored? Try to think of some specific scenarios to illustrate your answer.

International Firm Goal   Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?

Agency Problems   Suppose you own stock in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all the outstanding stock. Your company's management immediately begins fighting off this hostile bid. Is management acting in the shareholders' best interests? Why or why not?

Agency Problems and Corporate Ownership   Corporate ownership varies around the world. Historically, individuals have owned the majority of shares in public corporations in the United States. In Germany and Japan, however, banks, other large financial institutions, and other companies own most of the stock in public corporations. Do you think agency problems are likely to be more or less severe in Germany and Japan than in the United States? Why? In recent years, large financial institutions such as mutual funds and pension funds have been becoming the dominant owners of stock in the United States, and these institutions are becoming more active in corporate affairs. What are the implications of this trend for agency problems and corporate control?

Executive Compensation   Critics have charged that compensation to top management in the United States is simply too high and should be cut back. For example, focusing on large corporations, Larry Ellison of Oracle has been one of the best compensated CEOs in the United States, earning about $41 million in 2004 alone and $836 million over the 2000—2004 period. Are such amounts excessive? In answering, it might be helpful to recognize that superstar athletes such as Tiger Woods, top entertainers such as Mel Gibson and Oprah Winfrey, and many others at the top of their respective fields earn at least as much, if not a great deal more.