Strictly for course AB1201 internal circulation only.

Nanyang Business School

AB1201 Financial Management
Tutorial 1: Introduction
(Common Questions)

1) In the U.S., corporations are subjected to double taxation. In Singapore, dividends to

shareholders of corporations are not taxed. In this case, would there still be a tax
disadvantage to setting up a corporation rather than a sole proprietorship in Singapore?

2) Suppose three honest individuals gave you their estimates of Stock Xs intrinsic value.
One person is your current roommate, the second person is a professional security analyst
with an excellent reputation on Wall Street, and the third person is Company Xs CFO. If
the three estimates differed, in which one would you have the most confidence? Why?

3) The president of Southern Semiconductor Corporation (SSC) made this statement in the
companys annual report: SSCs primary goal is to increase the value of our common
stockholders equity. The newspapers also reported the following news on SSC.
a) The company contributed $1.5 million to the symphony orchestra in Birmingham,
Alabama, its headquarters city.
b) In an effort to reduce cost, SSCs plant released untreated industrial waste into the
nearby river.
Discuss how SSCs stockholders might view each of these actions, and how they might
affect the stock price.

4) This year, Edmund Enterprises spent a huge sum of money on research and development
(R&D) to develop a new product, which will be launched in a few years time. While the
new product wont have much effect on performance in the short run, it is expected to
increase future profits significantly. What effect will this increase in R&D have on
Edmund Enterprises earnings per share (EPS) this year? Would there be any effect on the
companys intrinsic value and stock price?

5) If a companys board of directors wants management to maximize shareholder wealth,

should the CEOs compensation be set as a fixed dollar amount, or should the
compensation depend on how well the firm performs? If it is to be based on performance,
how should performance be measured?

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