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Question 2. Fundamental Concepts
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Check My Assignment!In your own words, discuss and evaluate the following statement based on your learning from our classes as well as your own insight and example(s).
Question 2 – Part A.
“According to the M- M Theorem, corporate financial decisions do not affect firm value when there is no capital market imperfection.”
True or False? Please explain your answer with example(s). Hint: review Topic #1 presentation and recall our discussion in Week #2 meetings.
Question 2 – Part B.
“Information asymmetry and agency problems change with different stages of the firm-cycle.”
True or False? Please explain your answer with example(s). Hint: review Topic #1 presentation and recall our discussion in Week #2 meetings.
Question 3 continued next page
The following questions are related to Topic #1 “Fundamental Concepts of Corporate Finance”. Answer the following questions based on your own insight, research, and analyses. Support your own discussions with original examples. The following questions provide helpful preparation for Individual Research Assignment Part I – Equity Research.
Question 3. Fundamental Concepts and Equity Research (Individual Research Assignment – Part I)
Instruction: For your Individual Research Assignment Part I, pick a non-financial, publicly traded company, which has comprehensive business information and financial data available from financial statements and resources (see, e.g., http://www.morningstar.com, http://finance.yahoo.com/, etc.). Note: Do not pick financial companies or banks as they require different sets of techniques/analyses.
Based on the company you selected for the equity research, answer all of the following questions (in your own words):
Question 3 – Part A
Based on your own insight, provide 3 examples of the best (most competitive) products or services that are produced by this company.
Question 3 – Part B
In your own words, discuss the following: What is information asymmetry problem? Based on the company you selected for the equity research, discuss and explain whether this company is subject to any problem of information asymmetry. Discuss any example(s) of information asymmetry for this company.
Hints: This question provides useful preparation for your Individual Research Assignment Part I – Equity Research. To examine information asymmetry, you may examine some of the following examples/characteristics:
firm age and the stage of the firm-cycle (e.g., mature firm may have lower information asymmetry),
industry characteristics (e.g., technology industry may have higher information asymmetry),
significance of intangible assets and R&Ds (which may increase information asymmetry),
whether the firm paid dividends (which reduce information asymmetry),
whether the firm is covered by financial analyst (which reduces information asymmetry), among others.
