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- This document of ECO 100 Week 3 Discussion shows the solutions to the following problems:
- DQ 1: Corporations
- What major advantages of corporations have given rise to their dominance as form of business organization? Fully support your position in at least 200 words. Respond to at least three of your classmates
- Economics - Managerial Economics
- Midterm Exam Part 1
- Question 1
- The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?
- Answer
- Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.
- Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
- Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.
- Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Ca
- Question 2
- Various executive compensation plans have been employed to motivate managers to make decisions that maximize shareholder wealth. These include:
- Answer
- cash bonuses based on length of service with the firm
- bonuses for resisting hostile takeovers
- requiring officers to own stock in the company
- large corporate staffs
- Question 3
- A Real Option Value is:
- Answer
- An option that been deflated by the cost of living index makes it a “real” option.
- An opportunity cost of capital.
- An opportunity to implement cost savings or revenue expansion in a flexible business plan.
- An objective function and a decision rule that comes from it.
- Question 4
- To reduce Agency Problems, executive compensation should be designed to:
- Answer
- create incentives so that managers act like owners of the firm.
- avoid making the executives own shares in the company.
- be an increasing function of the firm's expenses.
- be an increasing function of the sales revenue received by the firm.
- Question 5
- The moral hazard in team production arises from
- Answer
- poorly designed team membership
- lack of proper assignment of individual tasks
- disorganization in groups
- a conflict between tactically best interest and one’s duty
- insufficient experience
- Question 6
- Income tax payments are an example of ____.
- Answer
- implicit costs
- explicit costs
- normal return on investment
- shareholder wealth
- Question 7
- Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds?
- Answer
- U.S. Government bonds
- municipal bonds
- common stock
- commercial paper
- Ques
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- Arrive at your classes as early as possible. You need to learn how to manage your schedule responsibly, allowing for travel time between classes. You will find out soon that tardiness can result in a lower grade and lost learning time. You don't want to start off on the wring foot with your instructors.
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