Suppose the CEO of a major corporation has five subsidiary companies. Only one of these companies is making better than the return on similar investments that the company could be making if it invested its financial capital outside the company
The CEO tells each of these subsidiary companies that the rate of return that they are earning is not acceptable and must rise to the level of these identified companies. He tells them if they can't come up with a plan in twelve months that their companies will be sold. If each of these companies was actually making money can you come up with an economic argument for why it is still rational for this CEO to sell them if they don't abide by his directive.
The question really boils down to opportunity cost. If stock holders realize that their investments could do better elsewhere then they will be upset with the CEO even if the company is making money. The opportunity cost of hanging on to these companies is the difference between what they are making and what they could make. By selling of the ones that can't comply with the directive the company can take the proceeds and investment them in a way that will raise their return and profitability.
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An investor can acquire shares of stock in Acme Corporation either by purchasing shares on the stock market or by purchasing a bond that is convertible into shares of Acme stock
After careful study, the investor discovers that she can profit by purchasing the bond, converting it to shares of stock, and selling the stock. This practice is called: A) selling short. B) arbitrage. C) profiteering. D) dumping. E) none of the above
During the Great Depression of the 1930s, unemployment peaked at _____%
a. 5 percent b. 10 percent c. 20 percent d. 25 percent e. 30 percent
A profit-maximizing farmer will apply additional units of fertilizer until the marginal revenue product (MRP) of fertilizer is half the MRP of skilled labor when a unit of fertilizer
a. costs twice as much as a unit of skilled labor. b. costs half as much as a unit of skilled labor. c. is half as productive, on average, as a unit of skilled labor. d. is twice as productive, on average, as a unit of skilled labor.
According to the John Maynard Keynes' liquidity trap, at very low rates of interest, people tend to
A. lend out their money. B. put their money in the bank. C. buy bonds. D. hold their money.