Answer questions in the following, and provide detailed calculations where needed. Question 1: Should stockholder wealth maximization be thought of as a long-term or a short-term goal? For example, if one action would probably increase the firm’s stock price from a current level of $20 to $25 in six months and then to $30 in five years, but another action would probably keep the stock at $20 for several years, but then increase it to $40 in five years, which action would be better? Can you think of some specific corporate actions that might have these general tendencies? Question 2: Loss Carryback/Carryover The Angell Company has earned $150,000 before taxes during each of the last 15 years, and it expects to earn $150,000 per year before taxes in the future. This year, however, the firm incurred a loss of $650,000. It will claim a tax credit at the time it files this year’s income tax return, and it will receive a check from the U.S. Treasury. Show how Angell calculates this credit, and then indicate the firm’s tax liability for each of the next five years. Assume a 30 percent tax rate on all income to simplify the calculations.
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