$1.(10$ points$)$ Please answer the following questions and briefly discuss the reasoning behind

your answer.

a$.$ What is a good decision and what is a bad decision from a financial manager$$s

perspective? How do these decisions contribute to attainment of a firm$$s goals$/$objectives$?$

b$.$ What does $$maximizing a company$$s collective value to current and future shareholders$$

mean? Why is it important?

c$.$ How does Stakeholder Theory affect the agency costs in the economic system?

d$.$ How does the state of the takeover market affect management$/$board behavior? What is the

best defense against a hostile takeover?

$2.(10$ points$)$ Please answer the following questions and briefly discuss your reasoning.

a$.$ Should idiosyncratic risk matter for pricing?

b$.$ Would you ever buy a stock with negative expected returns?

c$.$ How do the betas add up$?$

d$.$ Can you arbitrage stocks that are on the SML$?$ How about the stocks that are not on the

SML$?$