201FIN

Lecture 1 tutorial
Introduction to Corporate Finance

Question 1.
Define Finance.

Question 2.
How the financial environment has changed over the last decade?

Question 3.
What is corporate finance and what are the three decisions that the financial manager should
make?

Question 4.
What is capital budgeting?

Question 5.
What is the capital structure?

Question 6.
What does the reward (dividend) decision involve?

Question 7.
What are the three forms of business organization?

Question 8.
State some advantages and disadvantages of each form of business organization.
Question 9.
What is the agency relationship? What is the agency problem and what are the costs of the
agency problem?

Question 10.
How can we solve the agency problem?

Question 11.
What is the difference between stockholders and stakeholders? Give examples.

Question 12.
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 shares. Your company’s management immediately begins fighting off this
hostile bid. Is management acting in the shareholders’ best interests? Why or why not?

Question 13.
Critics have charged that compensation to top managers in the U.S is simply too high and
should be cut back. For example, focusing on large corporations, Ray Irani of Occidental
Petroleum has been one of the best compensated CEOs in the U.S, earning about $54.4M in
2007 alone and $550M over the 2003-2007 period. Are such amounts excessive? In
answering, it might be helpful to recognize that superstar athletes such as Tiger Woods, top
entertainers and many others at the top of their respective fields earn at least as much if not a
great deal more.