Problem Set # 9

Chapter # 13 - Corporate Governance

1. What is the possible agency conflict between inside owner/managers and outside shareholders?

1. What are some possible agency conflicts between borrowers and lenders?

1. How is it possible for an employee stock option to be valuable even if the firm's stock price fails to meet shareholders' expectations?

Chapter # 15 - Capital Structure Decisions.

1. Firms with relatively high nonfinancial fixed costs are said to have a high degree of what?

1. Why is the following statement true? "Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios."

1. MACC Inc. has fixed operating costs of$500,000 and variable costs of$50per unit. If it sells the product for$75 per unit, what is the break-even quantity?

1. If a firm went from zero debt to successively higher levels of debt, why would you expect its stock price to first rise, then hit a peak, and then begin to decline?