# What does it mean to maximize the value of a corporation?

A-Answer the following questions and the problems:

1-What does it mean to maximize the value of a corporation?

2- What is the difference between stock price maximization and profit maximization? Under what conditions might profit maximization not lead to stock price maximization?.

3- Barbell Corporation’s income statement reports that the company’s “bottom line” was \$180,000 in 2009. The Statement also shows that the company had depreciation and amortization expenses equal to 50,000 and taxes equal to \$120,000. What was Barbell’s net cash flow?

4- What economic functions do financial intermediaries perform? How do you think intermediaries characteristics will change in the future?

7- Describe how changes in interest rates (returns) affect the values of stocks and bonds. Give examples for the stock and bond markets to substantiate your answer.

8- Robert paid \$1000 for a 10 year bond with a coupon rate equal to 8 percent when it was issued on January 2. If Robert sold the bond at the end of the year in which it was issued for a market price of \$925, what return would he earn? What portion of this return represents capital gains, and what portion represents the current yield?

9- Identify factors that affect stock prices. The stock of East/West Maps is currently selling for \$122.40, which equates to a P/E ratio of 30 X. Using the P/E ratio, compute the current EPS of East/West.

C- Please do the following questions: (10 Points each)

1) Prepare a memo to you staff explaining the steps that will be needed to construct a pro-forma financial statement for your company. Be sure to address the following:

• Step one: The forecast 201x income statement
• Step two: The forecast the 201x balance Sheet
• Step Three: Raising the additional funds needed
• Step four: Accounting for financial feedbacks

OR

At a luncheon of local business leaders, you are asked to explain in layman’s terms what an investment bank is and what services it provides. Be sure to address the differences between the investment bank and the commercial bank and answer the question of who would use an investment bank. Also, discuss the importance of investment banks.

2) In your networking group, someone asks you to explain the differences between operating and financial leverage and how they can be used by the corporation. Be sure to discuss the following:

• The definition of operating and financial leverage

What areas of the income statement do operating and financial leverage affect, respectively?

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