Carson Company Case Study

a. I believe that if Carson supports the growth of its activities with stock, it will surely change its capital structure to include more equity that would not require a cash outflow. So Carson will be able to easily cover its debt payments. So, since Carson will have no risk of insolvability, financial institutions would be able to grant more credit to Carson as long as it had more equity to support its activities.

b. Companies whether public or private are often run by managers who are agents and are hired to serve the interests of shareholders. But we generally found that the managers are often motivated by personal interests rather than maximize shareholder wealth. This affects their decisions that could consequences on the company 's performance.

Carson needs to make a secondary offering that will at the offer affect the amount of proceeds it would receive when selling its shares at a high price. Carson could also acquire companies by using its shares instead of cash money and it will be even easier to acquire shares in companies at low cost with a higher price of its stocks. Any employee is motivated by wage increases, but this increase in wages is also binding on a good performance. Thus a high stock price can mean more compensation for its managers, and this can result in a good performance.

d. Usually stock compensation may be the motivation the managers have to make decisions to maximize the stock price, because they may be beneficiary as they may also be the company shares holders. Other managers with bad faith use accounting tricks to overstate the share price and sell it expensively to generate more profits. This strategy is critical and companies that offer options as remuneration are advised to allow managers to hold the stock for a number of

To minimize asymmetric information, it would be preferable for Carson to use reporting system for transparency and in which all operations can be easily monitored. This can be done through a well detailed financial reports provided timely.

b. If Carson really believes that its stock price will be higher, I suggest it to use credible information collected to anticipate and to counter major short positions taken by institutional investors. The risk will be bound especially to uncertainty which would be increased and even Expanded as Carson’s stock price over time could be adversely affected. Overall, regarding the prediction of events that may occur in the future, managers seems to have often a higher degree of certainty, or confidence to face such situation that may require a different perspective and different action to be