Please answer the questions in the attached document. If you have any questions, you can e-mail me at b..r@yahoo.com. The subject is Financial Markets and Institutions by Jeff Madura 11th ed. My assignment is due this evening, 02/07/2016. Thank you very much!

Bernie Gray, Sr. FINC 395 February 7, 2016 Week 4 Dropbox Assignment Chapter 10, Pgs 278 & 279 Flow of Funds: Recall that if the economy continues to be strong, carson company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. it would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that carson is concerned about a possible slowing of the economy because of potential fed actions to reduce inflation. it is also considering issuing stock or bonds to raise funds in the next year. a. b. Ss c. Ss d. ss Chapter 11, Pg 308 Flow of Funds Exercise: Valuing Stocks Recall that if the economy continues to be strong, carson company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. it would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that carson is concerned about a possible slowing of the economy because of potential fed actions to reduce inflation. it is also considering issuing stock or bonds to raise funds in the next year. If carson goes public, it might even consider using its stock as a means of acquiring some target firms. it would also consider engaging in a secondary offering at a future point in time if the IPO is successful and if its growth continues over time. It would also change its compensation system so that most of its managers would receive about 30 percent of their compensation in shares of carson stock and the remainder as salary. a. At the present time, the price-earnings (PE) ratio (stock price per share divided by earnings per share) of other firms in Carson's industry is relatively low but should rise in the future. Why might this information affect the time at which Carson issues its stock? b. Assume that Carson Company believes that issuing stock is an efficient means of circumventing the potential for high interest rates. Even if long-term interest rates have increased by the time it issues stock, Carson thinks that it would be insulated by issuing stock instead of bonds. Is this view correct? c. Carson Company recognizes the importance of a high stock price at the time it engages in an IPO (if it goes public). But why would its stock price be important to Carson Company even after the IPO? d. If Carson Company goes public, it may be able to motivate its managers by granting them stock as part of their compensation. Explain why the stock may motivate them to perform well. Then explain why the use of stock as compensation may motivate them to use a very shortterm focus, even though they are supposed to focus on maximizing shareholder wealth over the long run. How can a firm provide stock as motivation but prevent the managers from using a very short-term focus? a. b. c. d. dd dd dd dd Chapter 12, Pgs 337 & 338 Flow of Funds Exercise: Shorting Stocks Recall that if the economy continues to be strong, Carson Company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that Carson is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation. It is also considering issuing stock or bonds to raise funds in the next year. a. In some cases, a stock's price is too high or too low because of asymmetric information (information known by the firm but not by investors). How can Carson attempt to minimize asymmetric information? b. Carson Company is concerned that if it issues stock, its stock price over time could be adversely affected by certain institutional investors that take large short positions in a stock. When this happens, the stock's price may be undervalued because of the pressure on the price caused by the large short positions. What can Carson do to counter major short positions taken by institutional investors if it really believes that its stock price should be higher? What is the potential risk involved in this strategy? a. ff b. ff