16 Part One Value
bre44380_ch01_001-018.indd 16 09/02/15 03:41 PM
- Maximizing shareholder value Ms. Espinoza is retired and depends on her investments
for her income. Mr. Liu is a young executive who wants to save for the future. Both are stock-
holders in Scaled Composites, LLC, which is building SpaceShipOne to take commercial
passengers into space. This investment’s payoff is many years away. Assume it has a positive
NPV for Mr. Liu. Explain why this investment also makes sense for Ms. Espinoza. - Ethical issues The Beyond the Page feature, “Goldman Sachs Causes a Ruckus,” describes
the controversial involvement of Goldman Sachs in a mortgage-backed securities deal in
2006. When this involvement was revealed, the market value of Goldman Sachs’ common
stock fell overnight by $10 billion. This was far more than any fine that might have been
imposed. Explain. - Agency issues Why might one expect managers to act in shareholders’ interests? Give
some reasons. - Agency issues Many firms have devised defenses that make it more difficult or costly for
other firms to take them over. How might such defenses affect the firm’s agency problems?
Are managers of firms with formidable takeover defenses more or less likely to act in the
shareholders’ interests rather than their own? What would you expect to happen to the share
price when management proposes to institute such defenses? - Ethical issues Most managers have no difficulty avoiding blatantly dishonest actions. But
sometimes there are gray areas, where it is debatable whether an action is unethical and unac-
ceptable. Suggest an important ethical dilemma that companies may face. What principles
should guide their decision?