CORPORATE FINANCE BY RICHARD VIEW AHEAD 2026 PROBLEM SOLVING SET

CORPORATE FINANCE BY RICHARD VIEW
AHEAD 2026 PROBLEM SOLVING SET

◉ Why Profit Maximization Is Flawed. Answer: It ignores timing,
risk, and relies on accounting profits instead of cash flows.


◉ Profit Maximization Problem #1. Answer: Does not distinguish
between short-term and long-term profits.


◉ Profit Maximization Problem #2. Answer: Ignores risk.


◉ Profit Maximization Problem #3. Answer: Ignores timing of cash
flows.


◉ Profit Maximization Problem #4. Answer: Based on accounting
income instead of cash flow.


◉ Cash Flow vs Net Income. Answer: Financial decisions are based
on cash flows, not accounting profits.


◉ Agency Relationship. Answer: A relationship in which a principal
hires an agent to represent their interests.

, ◉ Principal. Answer: Stockholders (owners) who hire managers.


◉ Agent. Answer: Managers hired to run the company.


◉ Agency Problem. Answer: Conflict of interest between
stockholders and managers.


◉ Agency Costs. Answer: The costs that arise due to conflicts
between managers and stockholders.


◉ Direct Agency Costs. Answer: Wasteful spending and monitoring
costs such as auditing.


◉ Indirect Agency Costs. Answer: Missed opportunities when
managers avoid beneficial risky projects.


◉ Ways to Reduce Agency Problems. Answer: Give managers stock-
based compensation and increase board oversight.


◉ Board of Directors. Answer: Elected by shareholders to hire, fire,
and monitor managers.


◉ Proxy Fight. Answer: Attempt by shareholders to gain control by
voting out current management.