5. Corporate governance The management of Blanche Inc. controls 58% of the compa

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5. Corporate governance The management of Blanche Inc. controls 58% of the company's stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm's institutional investors are worried that the firm's poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented? O They would want to change the corporate bylaws so that one-third of the board seats are filled each year and each director serves a three-year term. O They would want to ensure that the company's CEO is also the chairperson of the board of directors. O They would want to change the corporate charter to allow cumulative voting instead of noncumulative voting. It is reasonable to assume that a firm's management is going to be ultimately motivated to act in their own best interest. It can be a serious problem for shareholders if management's self-interests do not align with shareholders' self-interests. Select the statement that best describes the board of directors' actions in the following scenario: Stay Swift Corp.'s optimal capital structure calls for the firm to have 20% debt and 80% equity financing. The firm's board of directors has decided to include only 10% debt in the firm's capital structure. The reason for using less than the optimal amount of debt is that the board wants to ensure they can borrow at a reasonable rate if a good investment opportunity arises. O The board's decision will give management an opportunity to make decisions that may not be in the shareholders' best interest. O The firm's amount of debt will not have an effect on the relationship between managers and shareholders. O The board's decision will help to align management's interests with the shareholders' interests. Flash Player WIN 29,0,0,140 Q3 3.34.1 © 2004-2016 Aplia. All rights reserved © 2013 Cengage Leaming except as noted. All rights reserved. Grade It Now Save & Continue

Explanation / Answer

•The board's decision will give management an opportunity to make decisions that mat not be in the shareholders best intrest.

Because it will affect the optimal capital structure of the firm in which the company makes good return on investment with optimum capital.The company has present structure of 80% equity and 20% debt and reducing in debt will result in higher equity and this will also return in high expectations of return of shareholders.

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