CORPORATE FINANCE

Case 1

We claim that the goal of the corporation is to maximize current market value and therefore shareholders' value. Could the following actions be consistent with that goal? Explain in a detailed manner.

a. The firm adds a cost-of-living adjustment to the pensions of its retired employees.

b. The firm reduces its dividend payment, choosing to reinvest more earnings in the business for further expansion of one of the companies best selling product lines.

c. The firm buys a corporate jet for its executives to be used on their family holidays.

d. The firm drills for oil in a remote jungle. The chance of finding oil is less than 5% and there may be some environmental issues.

e. The firm decides to invite (paying) the Rolling Stones band for a mini-concert on their Christmas Party event where only employees of the firm attend.