Economia

should be used, and what specific types of debt and equity securities should be issued? Also, what percentage of current earnings should be retained and reinvested rather than paid out as dividends? Each of these investment and financing decisions is likely to affect the level, timing, and risk of the firm’s cash flows, and, therefore, the price of its stock. Naturally, managers should make investment and financing decisions that are designed to maximize the firm’s stock price. Although managerial actions affect stock prices, stocks are also influenced by such external factors as legal constraints, the general level of economic activity, tax laws, interest rates, and conditions in the stock market. See Figure 1-1. Working within the set of external constraints shown in the box at the extreme left, management makes a set of FIGURE 1-1 Summary of Major Factors Affecting Stock Prices External Constraints: 1. Antitrust Laws 2. Environmental Regulations 3. Product and Workplace Safety Regulations 4. Employment Practices Rules 5. Federal Reserve Policy 6. International Rules Strategic Policy Decisions Controlled by Management: 1. Types of Products or Services Produced 2. Production Methods Used 3. Research and Development Efforts 4. Relative Use of Debt Financing 5. Dividend Policy Level of Economic Activity and Corporate Taxes Conditions in the Financial Markets Expected Cash Flows Timing of Cash Flows Perceived Risk of Cash Flows Stock Price 10 12 An…

P R I C E O F O I L H I G H ? Many of the most disruptive events for the world’s economies over the past several decades have originated in the world market for oil. In the 1970s members of the Organization of Petroleum Exporting Countries (OPEC) decided to raise the world price of oil in order to increase their incomes. These countries accomplished this goal by jointly reducing the amount of oil they supplied. From 1973 to 1974, the price of oil (adjusted for overall inflation)…

375 Resignations and Quits 375 The “Snake-Oil” Salesman 375 Multistage Games 376 Theory 376 Applications of Multistage Games 379 The Entry Game 379 Innovation 380 Sequential Bargaining 381 Answering the Headline 384 Summary 385 Key Terms and Concepts 385 Conceptual and Computational Questions 386 Problems and Applications 389 Case-Based Exercises 394 Selected Readings 394 Inside Business 10–1: Hollywood’s (not so) Beautiful Mind: Nash or “Opie” Equilibrium? 356 Inside Business 10–2:…