UNIT 01 MBA 203 Nature and scope, Finance functions, financial objectives, roles and responsibilities of the finance

ce manager, introduction to Indian financial system, Sources of finance: Equity capital, debenture, preference capital and term loans.

Lecturer Notes:
Why study finance? An understanding of the concepts, techniques, and practices presented in this course will fully acquaint you with the financial manager's activities. Because most business decisions are measured in financial terms, the financial manager plays a key role in the operation of the firm. People in all areas of responsibility accounting, information systems, management, marketing, and operations- need a basic understanding of the managerial finance function. All managers in the firm, regardless of their job descriptions, work with financial personnel to justify personnel requirements, negotiate operating budgets, deal with financial performance appraisals, and sell proposals based at least in part on their financial' merits. Clearly, those managers who understand the financial decision- making process will be better able to address financial concerns, and will therefore more often get the resources they need to accomplish their own goals. Concept of Finance Different finance scholars have interpreted the term finance in real world variably. More significantly, as noted at the very outset of this chapter, the concept of finance has changed markedly with change in times and circumstances. For convenience of analysis different viewpoints on finance can be categorized into following three major groups: 1. The first category incorporates the views of all those who contend that finance concerns with acquiring funds on reasonable terms and conditions to pay bills promptly. This approach covers study of financial institutions and instruments from which funds can be secured, the types and duration of obligations to be issued, the timing of the borrowing or sale of stocks, the amounts required, urgency of the need and cost. The approach has the virtue of shedding light on the very heart of finance function. However, the approach is too restrictive. It lays stress on only one aspect of finance. The traditional scholars hold this approach of finance 2. The second approach holds that finance is concerned with cash. Since almost all business transactions are expressed ultimately in terms of cash, every activity within the enterprise is the primary concern of a finance manager. Thus, according to this approach, 1 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

finance manager is required to go into details of every functional area of business activity, be it concerned with purchasing, production, marketing, personnel, administration, research or other associated activities. Obviously, such a definition is too. 3. A third approach to finance, held by modern scholars, looks at finance as being concerned with procurement of funds and wise application of these funds. Protagonists of this approach opine that responsibility of a finance manager is not only limited to acquisition of adequate cash to satisfy business requirements but extends beyond this to optimal utilisation of funds. Since money involves cost, the central task of a finance manager while allocating resources is to match the benefits of potential uses against the cost of alternative sources so as to maximise value of the enterprise. This is the managerial approach of finance which is also known as problem-centered approach, since it emphasizes that finance manager in his endeavor to maximise value of the enterprise has to deal with vital problems of the enterprise, viz., what capital expenditures should the enterprise make? What volume of the funds should the enterprise invest? How should the desired funds be obtained? Nature of Financial Management Financial management is an integral part of overall management and not merely a staff function. It is not only confined to fund raising operations but extends beyond it to cover utilisation of funds and monitoring its uses. These functions influence the operations of other crucial functional areas of the firm such as production, marketing and human resources. Hence, decisions in regard to financial matters must be taken after giving thoughtful consideration to interests of various business activities. Finance manager has to see things as a part of a whole and make financial decisions within the framework of overall corporate objectives and policies. The financial management of a firm affect its very survival because the survival of the firm depends on strategic decisions made in such important matters such as product development, market development, entry in new product line, retrenchment of a product, expansion of the plant, change in location, etc. In all these matters assessment of financial implications is inescapable. Another striking feature of financial management that explains its generic nature is the imperativeness of the continuous review of the financial decisions. As a matter of fact, financial decision-making is a continuous decision-making process, which goes on throughout the corporate life. Since a firm has to operate in an environment that is dynamic, it has, therefore, to interact constantly with various environmental forces in addition to changing conditions of the 2 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

firm and adapt and adjust its objectives and strategies including financial policies and strategies. A one-time financial plan not subjected to periodic review and modifications in the context of changed conditions will be a fiasco because conditions may change to such an extent that the plan is no longer relevant and acts as a hindrance rather than help. Financial planning should, therefore, not be static. It has to be continuously adapted to changing conditions. Objective: Financial Management Profit maximization Profitability objective may be stated in terms of profits, return on investment, or profit to-sales ratios. According to this objective, all actions such as increase income and cut down costs should be undertaken and those that are likely to have adverse impact on profitability of the enterprise should be avoided. Advocates of the profit maximisation objective are of the view that this objective is simple and has the in-built advantage of judging economic performance of the enterprise. Further, it will direct the resources in those channels that promise maximum return. This, in turn, would help in optimal utilisation of society's economic resources. Since the finance manager is responsible for the efficient utilisation of capital, it is plausible to pursue profitability maximisation as the operational standard to test the effectiveness of financial decisions. maximization with the cooperation of- rather than conflict with-its other stakeholders. However, profit maximisation objective suffers from several drawbacks rendering it an ineffective decisional criterion. These drawbacks are: (a) It is Vague It is not clear in what sense the term profit has been used. It may be total profit before tax or after tax or profitability rate. Rate of profitability may again be in relation to Share capital; owner's funds, total capital employed or sales. Which of these variants of profit should the management pursue to maximise so as to attain the profit maximisation objective remains vague? Furthermore, the word profit does not speak anything about the short-term and long-term profits. Profits in the short-run may not be the same as those in the long run. A firm can maximise its short-term profit by avoiding current expenditures on maintenance of a machine. But owing to this neglect, the machine being put to use may no longer be capable of operation after sometime with the result that the firm will have to defray huge investment outlay to replace the machine. Thus, profit maximisation suffers in the long run for the sake of maximizing short-term profit. Obviously, long-term consideration of profit cannot be neglected in favor of short-term profit. (b) It Ignores Time Value factor

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Profit maximisation objective fails to provide any idea regarding timing of expected cash earnings. For instance, if there are two investment projects and suppose one is likely to produce streams of earnings of Rs. 90,000 in sixth year from now and the other is likely to produce annual benefits of Rs. 15,000 in each of the ensuing six years, both the projects cannot be treated as equally useful ones although total benefits of both the projects are identical because of differences in value of benefits received today and those received a year two years after. Choice of more worthy projects lies in the study of time value of future flows of cash earnings. The interest of the firm and its owners is affected by the time value or. Profit maximisation objective does not take cognizance of this vital factor and treats all benefits, irrespective of the timing, as equally valuable. (c) It Ignores Risk Factor Another serious shortcoming of the profit maximisation objective is that it overlooks risk factor. Future earnings of different projects are related with risks of varying degrees. Hence, different projects may have different values even though their earning capacity is the same. A project with fluctuating earnings is considered more risky than the one with certainty of earnings. Naturally, an investor would provide less value to the former than to the latter. Risk element of a project is also dependent on the financing mix of the project. Project largely financed by way of debt is generally more risky than the one predominantly financed by means of share capital. In view of the above, the profit maximisation objective is inappropriate and unsuitable an operational objective of the firm. Suitable and operationally feasible objective of the firm should be precise and clear cut and should give weightage to time value and risk factors. All these factors are well taken care of by wealth maximisation objective. Maximize the Value of the Firm Brealey & Myers: "Success is usually judged by value: Shareholders are made better off by any decision which increases the value of their stake in the firm... The secret of success in financial management is to increase value." Copeland & Weston: The most important theme is that the objective of the firm is to maximize the wealth of its stockholders." Brigham and Gapenski: Management's primary goal is stockholder wealth maximization, which translates into maximizing the price of the common stock. Criticism of Value Maximization: Maximizing stock price is not incompatible with meeting employee needs/objectives. In particular: 4 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

Employees are often stockholders in many firms. Firms that maximize stock price generally are firms that have treated employees well. Maximizing stock price does not mean that customers are not critical to success. In most businesses, keeping customers happy is the route to stock price maximization. Maximizing stock price does not imply that a company has to be a social outlaw. That is why we have Wealth Maximisation as an Objective Wealth maximisation objective is a widely recognised criterion with which the performance a business enterprise is evaluated. The word wealth refers to the net present worth of the firm. Therefore, wealth maximisation is also stated as net present worth. Net present worth is difference between gross present worth and the amount of capital investment required to achieve the benefits. Gross present worth represents the present value of expected cash benefits discounted at a rate, which reflects their certainty or uncertainty. Thus, wealth maximisation objective as decisional criterion suggests that any financial action, which creates wealth or which, has a net present value above zero is desirable one and should be accepted and that which does not satisfy this test should be rejected. The wealth maximisation objective when used as decisional criterion serves as a very useful guideline in taking investment decisions. This is because the concept of, wealth is very clear. It represents present value of the benefits minus the cost of the investment. The concept of cash flow is more precise in connotation than that of accounting profit. Thus, measuring benefit in terms of cash flows generated avoids ambiguity. The wealth maximisation objective considers time value of money. It recognises that cash benefits emerging from a project in different years are not identical in value. This is why annual cash benefits of a project are discounted at a discount rate to calculate total value of these cash benefits. At the same time, it also gives due weightage to risk factor by making necessary adjustments in the discount rate. Thus, cash benefits of a project with higher risk exposure is discounted at a higher discount rate (cost of capital), while lower discount rate applied to discount expected cash benefits of a less risky project. In this way, discount rate used to determine present value of future streams of cash earning reflects both the time and risk. . (In view of the above reasons, wealth maximisation objective is considered superior profit maximisation objective. It may be noted here that value maximisation objective is simply the extension of profit maximisation to real life situations. Where the time

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period is short and magnitude of uncertainty is not great, value maximisation and profit maximisation amount almost the same thing) Objective redefined Although shareholder wealth maximization is the primary goal, in recent years many firms have broadened their focus to include the interests of stakeholders as well as shareholders. Stakeholders are groups such as employees, customers, suppliers, creditors, and owners who have a direct economic link to the firm. Employees are paid for their labor, customers purchase the firm's products or services, suppliers are paid for the materials and services they provide, creditors provide debt financing, and owners provide equity financing. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders by damaging their wealth positions through the transfer of stakeholder wealth to the firm. The goal is not to maximize stakeholder well being, but to preserve it. The stakeholder view tends to limit the firm's actions in order to preserve the wealth of stakeholders. Such a view is often considered part of the firm's "social responsibility." It is expected to provide long-run benefit to shareholders by maintaining positive stakeholder relationships. Such relationships should minimize stakeholder turnover, conflicts, and litigation. Clearly, the firm can better achieve its goal of shareholder wealth maximization with the cooperation of- rather than conflict with-its other stakeholders.

Major Decisions in Financial Management Investment Decision: Investment decision or capital budgeting involves the decision of allocation of capital or commitment of funds to long-term assets that would yield benefits in the future. Two important aspects of the investment decision are: a. The evaluation of the prospective profitability of new investments, and b. The measurement of a cut-off rate against that the prospective return of new investments could be compared. Future benefits of investments are difficult to measure and cannot be predicted with certainty. Because of the uncertain future, investment decisions involve risk. Investment proposals should, therefore, be evaluated in terms of both expected return and risk. Besides the decision for investment managers do see where to commit funds when an asset becomes less productive or non-profitable. 6 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

There is a broad agreement that the correct cut-off rate is the required rate of return or the opportunity cost of capital. However, there are problems in computing the opportunity cost of capital in practice from the available data and information. A decision maker should be aware of capital in practice from the available data and information. A decision maker should be aware of these problems. Financing Decision : Financing decision is the second important function to be performed by the financial manager. Broadly, her or she must decide when, where and how to acquire funds to meet the firms investment needs. The central issue before him or her is to determine the proportion of equity and debt. The mix of debt and equity is known as the firms capital structure. The financial manager must strive to obtain the best financing mix or the optimum capital structure for his or her firm. The firms capital structure is considered to be optimum when the market value of shares is maximised. The use of debt affects the return and risk of shareholders; it may increase the return on equity funds but it always increases risk. A proper balance will have to be struck between return and risk. When the shareholders return is maximised with minimum risk, the market value per share will be maximised and the firms capital structure would be considered optimum. Once the financial manager is able to determine the best combination of debt and equity, he or she must raise the appropriate amount through the best available sources. In practice, a firm considers many other factors such as control, flexibility loan convenience, legal aspects etc. in deciding its capital structure. Dividend Decision: Dividend decision is the third major financial decision. The financial manager must decide whether the firm should distribute all profits, or retain them, or distribute a portion and retain the balance. Like the debt policy, the dividend policy should be determined in terms of its impact on the shareholders value. The optimum dividend policy is one that maximises the market value of the firms shares. Thus if shareholders are not indifferent to the firms dividend policy, the financial manager must determine the optimum dividend payout ratio. The payout ratio is equal to the percentage of dividends to earnings available to shareholders. The financial manager should also consider the questions of dividend stability, bonus shares and cash dividends in practice. Most profitable companies pay cash dividends regularly. Periodically, additional shares, called bonus share (or stock dividend), are also issued to the existing shareholders in addition to the cash dividend. Liquidity Decision: Current assets management that affects a firms liquidity is yet another important finances function, in addition to the management of long-term assets. Current assets 7 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

should be managed efficiently for safeguarding the firm against the dangers of illiquidity and insolvency. Investment in current assets affects the firms profitability. Liquidity and risk. A conflict exists between profitability and liquidity while managing current assets. If the firm does not invest sufficient funds in current assets, it may become illiquid. But it would lose profitability, as idle current assets would not earn anything. Thus, a proper trade-off must be achieved between profitability and liquidity. In order to ensure that neither insufficient nor unnecessary funds are invested in current assets, the financial manager should develop sound techniques of managing current assets. He or she should estimate firms needs for current assets and make sure that funds would be made available when needed. Role of Finance Manager Role and responsibilities of a finance manager have undergone a remarkable transformation during the past four decades. Not too many years ago, finance manager had a very limited role in a business enterprise. He was responsible only for maintaining financial records, preparing reports on the company's status and performance and arranging funds needed by the company so that it could meet its obligations in time. Finance manager, as a matter of fact, was regarded as specialised staff officer in the company concerned only with administering sources of funds. He was called upon only when his specialty was needed. For example, when the company experienced the problem of dearth of funds, the management expected the finance manager to locate suitable sources of funds and procure additional funds. However, the finance manager transcended his traditional role of garnering external funds for the enterprise following technological changes in major industries, increased business complexities, tightening money market conditions and despondent state of stock market, and has now become part and parcel of general management. He occupies the role of an executive who is actively associated with problems and decisions related to wise application of funds. He deals with the total funds deployed by the organisation, allocation of funds among varying projects and activities and with evaluation of results of each allocation. He is, therefore, directly concerned with production, marketing and other activities within a business enterprise whenever decisions are made that Involve commitment of funds to new or ongoing uses. Role of finance managers has increased tremendously and their tasks have become complicated following cataclysmic changes in recent times in the entire global economic environment and the world market place resulting in globalisation of 8 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

business and increased competitiveness" The multinational corporations of today conduct their operations world-wide as if the entire world were a single entity with a major thrust on quality, cost and speed." So as to cope with challenges stemming out of globalisation of world economy and to exploit tremendous potential opportunities, most of the developing countries including India have, of late, decided to liberalise their economic policies and open the floodgates of their domestic markets to multinationals. Various economic and financial policy reforms have been introduced with a view to freeing business from the grip of administered growth and demolishing the protecting walls of yesteryears. In order to face these challenges and to ensure their survival many Indian corporate giants have desperately formed strategic alliances with global majors and some of them embarked hurriedly on internal restructuring. Since ferocity of competition is likely to deepen further, it would be worthwhile for Indian companies to take strategic measures for their survival and growth. They should formulate strategy to achieve the competitive advantage and sustain their edge over the rivals. The focal points of such strategy have to be on quality and cost which together contribute significantly to organisational effectiveness. In translating this strategy into action the finance manager has to play a very effective and integrated role by helping the top management in making financial decisions to reduce cost, improve productivity and maximise corporate value. To handle the new responsibilities the finance manager must have clear conception of the corporate objectives of his organization as he has to act in conformity with these objectives. Furthermore, he has to evaluate the effectiveness of financial decisions in the light of some standards. Corporate objectives of the organisation provide such standards. The finance manager should also have stronger grasp of the nature, functions and scope of financial management. Finance managers are presently facing some new challenges as indicated below: TREASURY OPERATIONS: Short-term fund management must be more sophisticated. Finance managers could make speculative gains by anticipating interest rate movements. FOREIGN EXCHANGE: Finance Managers will have to weigh the costs and benefits of playing with foreign exchange particularly now that the Indian

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economy is going global and the future value of the rupee visa a vis foreign currency has become difficult to predict. FINANCIAL STRUCTURING: An optimum mix between debt and equity will be essential. Firms will have to tailor financial instruments to suit their and investors' needs. Pricing of new issues is an important task in the Finance Managers portfolio now. MAINTAINING SHARE PRICES: In the premium equity era, firms must ensure that share prices stay healthy. Finance managers will have to devise appropriate dividend and bonus policies. ENSURING MANAGEMENT CONTROL: Equity issues at premium means managements may lose control if they are unable to take up their share entitlements. Strategies to prevent this are vital. What is a financial system? Savings mobilisation and promotion of investment arc functions of the stock and capital markets, which are a part of the organised financial system in India. The objective of all economic activity is to promote the well being and standard of living of the people, which depends on the income and distribution of income in terms of real goods and services in the economy. The production of output, which is vital to the growth process in the economy, is a function of the many inputs used in the productive process. These inputs are material inputs (in the form of physical materials, viz., raw materials, plant, machinery, etc.), human inputs (in the form of labor and enterprise) and financial inputs (in the form of capital, cash and credit). The easy availability of financial inputs promotes the growth process through proper coordination between human and material inputs. The financial inputs emanate from the financial system, while real goods and services are part of the real system. The interaction between the real system (goods and services) and the financial system (money and capital) is necessary for the productive process. Trading in money and monetary assets constitute the activity in the financial markets and are referred to as the financial system. Functions of financial markets The primary function of the financial markets is to facilitate the transfer of funds from surplus sectors (lenders) to deficit sectors (borrowers). Normally, households have excess of funds or savings, which they lend to borrowers in the corporate and public sectors whose requirement of funds, exceed their savings. A financial market consists of investors or buyers, 'sellers, dealers 10 Lecturer Note/MBA-203/FM/N.S.Bohra/ Assistant Professor/Faculty of Management/GEU

and brokers and does not refer to a physical location. Formal trading rules and communication networks for originating and trading financial securities link the participants in the market. The primary market in which public issue of securities is made through a prospectus is a retail market and there is no physical location. The investors are reached by direct mailing. On the other hand, the secondary market or stock exchange where existing securities are traded, is an auction market and may have a physical location such as the rotunda of the Bombay Stock Exchange or\the trading floor of Delhi, Ahmedabad and other exchanges where the exchange members meet to trade securities face-to-face. In the Over-The-Counter (OTCEI) market and National Stock Exchange, trading in securities is screen-based. The Bombay Stock Exchange (BOLT) now introduces on-line trading, and other exchanges are in the process of introducing the same that is screen-based. Financial markets trade in money and their price is the rate of return the buyer expects the financial asset to yield. The value of financial assets change with the investors' expectations on earning or interest rates. Investors seek the highest return for a given level of risk (by paying the lowest price) and users of funds attempt to borrow at the lowest rate possible. The aggressive interaction, of investors and users of funds in a properly functioning capital market ensures the flow of capital to the best user. Investors receive the highest return and the users obtain funds at the lowest cost. The three important functions of financial markets are: 1. Financial markets facilitate price discovery. The continual interaction among numerous buyers and sellers who throng financial markets help in establishing the prices of financial assets. Well-organised financial markets seem to be remarkably efficient in price discovery. That is why financial economists say: "If you want to know what is the value of a financial asset simply look at its price in the financial market" 2. Financial markets provide liquidity to financial assets. Investors can readily sell their financial assets through the mechanism of financial markets. In the absence of financial markets, which provide such liquidity, the motivation of investors to hold financial assets will be considerably diminished. Thanks to negotiability and transferability of securities through the financial markets, it is possible for companies (and other entities) to raise long-term funds from investors with short-term and medium-term horizons. While one investor is substituted by another when a security is transacted, the company is assured of long-term availability of funds.

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3.

Financial markets considerably reduce the cost of transacting. The two major costs associated with transacting are search costs and information costs. Search costs comprise explicit costs such as the expenses incurred on advertising when one wants to buy or sell an asset and implicit costs such as the effort and time one has to put in to locate a customer. Information costs refer to costs incurred in evaluating the investment merits of financial assets.

Classification of Financial Market One way is to classify financial markets by the type of financial claim. The debt market is the financial market for fixed claims (debt instruments) and the equity market is the financial market for residual claims (equity instruments). A second way is to classify financial markets by the maturity of claims. The market for short-term financial claims is referred to as the money market and the market for long-term financial cli.1ims is called the capital market Traditionally the cut-off between short-term and long-term financial claims has been one yearthough this dividing line is arbitrary, it is widely accepted. Since short-term financial claims are almost invariably debt claims, the money market is the market for short-term debt instruments. The capital market is the market for longterm debt instruments and equity instruments. A third way to classify financial markets is based on whether the claims represent new issues or outstanding issues. The market where issuers sell new claims is referred to as the primary market and the market where investors trade outstanding securities is called the secondary market A fourth way to classify financial markets is by the timing of delivery. A cash or spot market is one where the delivery occurs immediately and a forward or futures market is one where the' delivery occurs at a pre-determined time in future. A fifth way to classify financial markets is by the nature of its organisational structure. An exchange-traded market is characterised by a centralised organisation with standardised procedures. An over-the counter market is a decentralised market with customised procedures.

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Efficiency of Financial System The real test of development of financial system is its efficiency in operations and functional roles. The operational efficiency is reflected in the costs of intermediation, quality of service and its width. The improved operational efficiency during the nineties is seen from significant reforms in the capital market and stock markets, lowering of costs of credit and greater flow of bank credit into these markets, lowering of costs raising funds from the capital market through the route of book building and private placement. The strengthening of the institutions evidences the Width of Services Structure and increasing the instruments of mobilising funds, introduction of technological innovations in the Stock and Capital markets and in the banking system, deregulation, privatization and globalisation of markets and freer flow of funds into and outside country, etc. The reforms in general and increasing role of technology and competitive forces in particular have improved the quality of service. Any financial system can be assessed for its functional efficiency through following criteria in general 1. Quantity of funds raised through saving for investment and pattern of allocation from less to more productive purposes. 2. Its contribution to economic growth and its impact on real economic variables, reflected in market capitalisation as a proportion of GDP and the usual ratios, such as Finance ratio - ratio of total issues to national income; Financial inter-relations ratio ratio of total issues to net domestic capital, formation; and financial intermediation ratio - ratio of secondary issues raised by banks and financial institutions to primary issues in the market. 3. Information absorption - whether all information an market and economy are fully reflected in the scrip prices. 4. Fundamental valuation efficiency - whether the company valuarion_are reflected in scrip prices.

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CASE STUDY Assessing the Goal of Sports Products Ltd Loren and Dale work in the Shipping Department of Sports Products Ltd.. During their lunch break one day, they began talking about the company. Dale complained that he had always worked hard, trying not to waste packing materials and to perform his job efficiently and cost-effectively. In spite of his efforts and those of his departmental coworkers, the firm's stock price had declined nearly Rs.25 per share over the past 9 months. Loren indicated that she shared Dale's frustration, particularly because the firm's profits had been rising. Neither could understand why the firm's stock price was falling as profits rose. Loren said that she had seen documents describing the firm's profit-sharing plan under which all managers were partially compensated on the basis of the firm's profits. She suggested that maybe it was profit that was important to management, because it directly affected their pay. Dale said, "That doesn't make sense, because the stockholders own the firm. Shouldn't management do what's best for stockholders? Something's wrong!" Loren responded, "Well, maybe that explains why the company hasn't concerned itself with the stock price. Look, the only profits stockholders receive are in the form or cash dividends, and this firm has never paid dividends during its 20-year history. We as stockholders therefore don't directly benefit from profits. The only way we benefit is for the stock price to rise." Dale chimed in, "That probably explains why the firm is being sued by state and central environmental officials for dumping pollutants in the adjacent stream. Why spend money for pollution controls? It increases costs, lowers profits, and therefore lowers management's earnings!" Loren and Dale realized that the lunch break had ended and they must quickly return to work. Before leaving, they decided to meet the next day to continue their discussion. Required
1. 2. 3. 4. What should the management of Sports Products, Inc., pursue as its overriding goal? Why? Does the firm appear to have an agency problem? Explain. Evaluate the firm's approach to pollution control. Does it seem to be ethical? Why might incurring the expense to control pollution be in the best interests of the firm's owners in spite of its negative impact on profits? 5. On the basis of the information provided, what specific recommendations would you offer the firm?

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