a. What should the management of Swing Products Inc. pursue as its overriding goal? Why?

Current theory asserts that the firms proper goal is to maximize shareholders wealth, as measured by the market price of the firms stock. A firms stock price reflects the timing, size and risk of the cash flow that investors expect a firm to generate over time. So financial managers should undertake only those actions that they expect will increase the value of the firms future cash flow. Theoretical and empirical arguments support the assertion that managers should focus on maximization shareholder wealth. Shareholders of a firm are sometimes called residual claimants, meaning that they have claims only on any of the firms cash flows that remain after employees, suppliers, creditors; governments and other stakeholders are paid in full. Shareholders stand at the end of this line so if the firm cannot pay the stakeholders first, shareholders receive nothing! Shareholders also bear most of the risk of running the firm. So if firms did not manage to maximize shareholders wealth, investors would have little incentive to accept the risks necessary for a business to succeed. b. Does the firm appear to have an agency problem? Explain. Yes. In this case, the firms stock price had declined nearly $2 per share over the past 9 months and at the same time the firms profits had been rising. What the shareholders receive are in the form of cash dividends, and this firm has never paid dividends during its 20-year history. Based on what I wrote before, shareholders wealth is reducing during this period and it shows that there is an agency problem. In addition, managements actions in case of pollution controls show a profit maximization try, which means they are trying to maximize their salary, rather than an attempt to maximize shareholders wealth(stock price). c. Evaluate the firms approach to pollution control. Does it seem to be ethical? Why might incurring the expense to control pollution be in the best interests of the firms owners despite its negative effect on profits? It possibly has two sides! We dont know whether their acts were planned or accidental. It is clear that they are violating the law with dumping pollutants in the adjacent stream and damaging the environment. Clearly, Sports Products has not only done against the law but also established poor standards of conduct and moral judgment. So at both situations, the companys manner does not seem to be ethical. Incurring the expense to control pollution be in the best interests of the firms owners because guarantees the firms long term profits in case of social responsibility. d. Does the firm appear to have an effective corporate governance structure? Explain any shortcomings. It seems not! The most important shortcoming is the management team who dont make good decisions for maximizing shareholders wealth. Management have their own agendas and the

stock price fell nearly US$2 per share over the past nine months. Therefore the firm is not being efficiently monitored and controlled e. On the basis of the information provided, what specific recommendations would you offer the firm? I would recommend that the firm should change managements thinking and insist that they should think of the firms interest before their own. Besides it also comply with all laws as well as accepted standards of conduct or moral judgment.