When can there arise a conflict between shareholders and managers goals? How does wealthmaximization goal take care of this conflict?

2.A company has just tested the market for a new product. The test indicates thatthe product may capture about 40 percent of the market share. It is also expectedthat 25 percent of the new product's share will be at the cost of an existingproduct. The new product can be manufactured in the existing facilities, whichcould also be used to meet the expected increase in one of the company's existingproducts. The company's financial analyst argues that she would include the testcosts in the new product's cash flows since they were incurred for testing the newproduct butwould exclude the lost contribution on an existing product and thevalue of the existing facilities to be used for the manufacture of the new productbecause no out-of-pocket cost is incurred. Do you agree with the analyst? Why orwhy not?

3.Which of the financial ratios of a company would youreferto in each of thefollowing situations? Give reasons.

(i) The company asks you to sell material on credit.

(ii)You are thinking of investing $25,000 in the company'sBonds.

(iii) You are thinking of investing $25,000 in the company's shares.

4.What are the basic financial decisions? How do they involve risk-return trade-off