1-Discussion: "Securities and Exchange Commission." -Fin 540- Respond to the following: Analyze the steps taken by the Securities and Exchange Commission (SEC) to protect investors who are purchasing stock and make at least one recommendation for an additional step.[200 words]
1. Which of the following are legal and acceptable reasons for the high level of merger activity in the
U.S. during the 1980s?
a. Synergistic benefits arising from mergers.
b. A profitable firm acquires a firm with large accumulated tax losses that my be carried forward.
c. Attempts to stabilize earnings by diversifying.
d. Purchase of assets below their replacement costs.
e. Reduction in competition resulting from mergers.
2. Which of the following statements about valuing a firm using the APV approach is most
CORRECT?
a. The value of operations is calculated by discounting the horizon value, the tax shields, and
the free cash flows at the cost of equity.
b. The value of equity is calculated by discounting the horizon value, the tax shields, and the
free cash flows at the cost of equity.
c. The value of operations is calculated by discounting the horizon value, the tax shields, and
the free cash flows before the horizon date at the unlevered cost of equity.
d. The value of equity is calculated by discounting the horizon value and the free cash flows at
the cost of equity.
e. The APV approach stands for the accounting pre-valuation approach.
3. Which of the following statements is most CORRECT?
a. If a company that produces military equipment merges with a company that manages a chain
of motels, this is an example of a horizontal merger.
b. A defensive merger is one where the firm's managers decide to merge with another firm to
avoid or lessen the possibility of being acquired through a hostile takeover.
c. Acquiring firms send a signal that their stock is undervalued if they choose to use stock to
pay for the acquisition.
d. Cash payments are used in takeovers but never in mergers.
e. Managers often are fired in takeovers, but never in mergers.
abcdd
To analyze the steps taken by the Securities and Exchange Commission (SEC) to protect investors who are purchasing stock, we can break down the process into key actions taken by the SEC:
1. Disclosure requirements: The SEC mandates that companies provide comprehensive and accurate information to investors before they purchase stock. This includes financial statements, management discussion and analysis, and information about the company's business operations. By ensuring transparency, investors can make informed decisions.
2. Insider trading restrictions: The SEC prohibits individuals with non-public information from trading stocks based on that information. This prevents unfair advantages and ensures a level playing field for all investors.
3. Enforcement of securities laws: The SEC has the authority to enforce federal securities laws and regulations, bringing legal action against offenders. This protects investors by deterring fraudulent activities and market manipulation.
4. Registration of securities: The SEC requires companies to register their securities offerings before selling them to the public. This ensures that investors are provided with all necessary information before making investment decisions.
5. Market surveillance: The SEC actively monitors financial markets and investigates potential violations. By keeping a close eye on market activities, they can identify irregularities, address potential threats, and protect investors from fraudulent schemes.
While the SEC has implemented several measures to protect investors, an additional recommendation would be to enhance investor education and awareness. Investing in the stock market can be complex, and many individuals may lack the necessary knowledge to make informed decisions. By offering educational programs, workshops, and resources, the SEC can help investors better understand the risks and opportunities associated with investing in stocks. This would empower individuals to make more informed investment choices and protect themselves from potential scams or unscrupulous practices.