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Finance Case Study 1

Google has a responsibility to ensure user privacy when using Google Glass. While the goal of maximizing shareholder wealth itself may not be unethical, companies must pursue this goal through ethical actions. For the finance case study, Option 2 of pursuing public equity financing is recommended over Option 1 of high debt financing. Public equity avoids debt leverage risks and restrictive debt covenants. It also allows the company to expand without cash flow obstacles or urgent return pressures faced by debt investors. Some drawbacks are loss of owner control and increased disclosure obligations for a public company. On balance, public equity financing poses less risk than high debt financing for the company's goals.

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kazi A.R Rafi
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127 views2 pages

Finance Case Study 1

Google has a responsibility to ensure user privacy when using Google Glass. While the goal of maximizing shareholder wealth itself may not be unethical, companies must pursue this goal through ethical actions. For the finance case study, Option 2 of pursuing public equity financing is recommended over Option 1 of high debt financing. Public equity avoids debt leverage risks and restrictive debt covenants. It also allows the company to expand without cash flow obstacles or urgent return pressures faced by debt investors. Some drawbacks are loss of owner control and increased disclosure obligations for a public company. On balance, public equity financing poses less risk than high debt financing for the company's goals.

Uploaded by

kazi A.R Rafi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Finance case study 1

1.Is the goal of maximization shareholder wealth necessarily ethical or unethical?


It is not the goal that makes maximization of shareholder wealth ethical or unethical; it is actions of
financial managers in pursuit of this goal.
2.What responsibility, if any, does Google have to protect the privacy of those who interact with
other people wearing Glass?
Google has a responsibility to ensure that its products and users of its product protect the privacy of
those who interact with the users of Google’s products. Google Glass poses an ethical challenge as
users could seemingly videotape or photograph others without their knowledge. It is Google’s
responsibility to ensure that its devices cannot be used to capture images of people inconspicuously.
For example, in some countries like Germany, it is legally prohibited to photograph a person in
certain circumstances without the consent of the concerned person. Google glass raise an ethical and
legal concern as it allows for shooting pictures secretly in violations of law.

Finance case study 2


A. Discuss the pros and cons of option 1, and prioritize your thoughts. What are the most positive
aspects of this option, and what are the biggest drawbacks?
The option 1 pros of this option are:
a. The well-established relationship between J.P.Morgan and Merit will provide easier transactions
and negotiations.
b. By offering a building or assets as collateral, Merit will go lower interest rates, plus the interest is
often deductible for tax purposes
c. Getting the 4 billion Loan that Merit needs at a reasonable rate and using it to increase their
expansion of production capacity can bring a major return on investment.
d. Since the consortium of lending bankers will consist of J.P.Morgan , it could better explain the
creditworthiness and credibility of Merit to the other bankers and facilitate in obtaining such a large
amount of loan.
The drawbacks of option 1 are:
a. With increased reliance on debt, the financial risk increases, and the debt servicing burden of Merit
will increase
b. With an increase in Debt/equity ratio cost of the loan will increase as now Merit has higher
financial leverage
c. This could result in changes in bankruptcy in periods of uncertainty or slowdown. * The
consortium of bankers will lay down restrictive covenants which will impose restrictions on the
further form of funding
d. There will be a lot of interference from the bankers in the form of periodic assessments and
financial disclosures such as periodic cash flows and financial statements
e. This could create agency problems as there will be a conflict of interest between the stakeholders,
management, and lenders.
B. Do the same for option 2.
In Option 2 , the pros of this option are:
a. Big investors would cooperate in Merits stock offer.
b. There will be no cash flow obstacles. Equity funding does not take funds out of business.
c. Equity investors do not anticipate to obtain an urgent return on investment.
The drawbacks of option 2 are:
a. Lack of control of the current Merit owner.
b. There will be a possible conflict.
c. Dividends require a high cost. The amount of money paid to the owners could be higher than the
interest rates on debt financing.
d. Going public will also be a tremendous asset to employees for another type of compensation.
e. Going public will face comprehensive disclosure obligations.
C. Which option do you think that Sara should recommend to the board, and why?
The best option would be to go to the public. Building this $4 million by taking this route will not
only make the company healthier but also make Sara's company work even harder to make sure it is
not only successful every year but where their financial situation is constantly. The company will not
face leverage problems and will not be exposed to default risk.

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