New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Case Problems in Managerial Finance

by: Raina Bahringer

Case Problems in Managerial Finance FIN 405

Marketplace > University of Nevada - Las Vegas > Finance > FIN 405 > Case Problems in Managerial Finance
Raina Bahringer

GPA 3.81


Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Class Notes
25 ?




Popular in Course

Popular in Finance

This 2 page Class Notes was uploaded by Raina Bahringer on Sunday October 25, 2015. The Class Notes belongs to FIN 405 at University of Nevada - Las Vegas taught by Staff in Fall. Since its upload, it has received 26 views. For similar materials see /class/228620/fin-405-university-of-nevada-las-vegas in Finance at University of Nevada - Las Vegas.


Reviews for Case Problems in Managerial Finance


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/25/15
Corporate Focus and Internal Capital Markets Advantages of diversi cation Nt I E 4 V39 Diversi cation leads to economics of scope Multidivisional rms create a level of management concerned with coordination of specialized divisions and they are inherently more efficient and thus more pro table than their lines of business would be separately Firms diversify to overcome imperfections in external capital markets If the information asymmetry between the rm and potential investors becomes too large rms may decide to forego positive net present value NPV projects Diversi ed rms by creating a larger internal capital market reduce the under investment problem Another potential bene t of diversi cation arises from combining businesses with imperfectly correlated earnings streams This coinsurance effect gives diversi ed rms greater debt capacity than singleline businesses of similar size One way in which increased debt capacity creates value is by increasing interest taX shields Thus diversi ed rms are predicted to have higher leverage and lower taX payments than their businesses would show if operated separately A further tax advantage arises from the tax code s asymmetric treatment of gains and losses Note that undiversi ed rms are at a signi cant taX disadvantage because taX is paid to the government when income is positive but the government does not pay the rm when income is negative This disadvantage is reduced but not eliminated by the taX code s carryback and carryforward provisions Many authors argue however that related diversi ed rms perform better than conglomerates argues that related diversi cation affects value more positively than unrelated diversi cation because skills and resources can be used in related markets Others discuss the effects of reputation and economies of scope which arise when the joint cost of producing two or more outputs is less than the sum of the costs of producing each output by itself 9 Diversi cation can create several costs Diversi ed rms will invest too much in lines of business with poor investment opportunities This argument can lead to crosssubsidization of failing business segments A failing business cannot have a value below zero if operated on its own but can have a negative value if it is part of a conglomerate that provides crosssubsidies Managers diversify to protect the value of their human capital Theoretically if diversi cation might reduce underinvestment problems it can also lead to overinvestment The crosssubsidization of divisions within a conglomerate gives divisional managers easy access to capital which may exacerbate the agency costs of free cash ow Jensenl986 Proponents of conglomerate diversi cation implicitly assume that managers of conglomerates are better at monitoring the divisions than the external capital market and that agency costs are not large enough to offset this bene t


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.