Does the firm appear to have an agency problem

Reference no: EM131299676

FIN 419:Evaluate the firm's approach to pollution control. Does it seem to be ethical? Finance 419 (FIN 419) Business Finance Principles of Managerial Finance Brief Fourth 4th Edition Lawrence J. Gitman Prepare responses to the following problems from the text: Chapter 1 Case: Assessing the Goal of Sports Products, Inc. Loren Seguara and Dale Johnson both work for Sports Products, Inc., a major producer of boating equipment and accessories. Loren works as a clerical assistant in the Accounting Department, and Dale works as a packager in the Shipping Department. During their lunch break one day, they began talking about the company. Dale complained that he had always worked hard trying not to waste packing materials and efficiently and cost-effectively performing his job. In spite of his efforts and those of his co-workers in the department, the firm's stock price had declined nearly $2 per share over the past 9 months. Loren indicated that she shared Dale's frustration, particularly because the firm's profits had been rising. Neither could understand why the firm's stock price was falling as profits rose. Loren indicated that she had seen documents describing the firm's profit-sharing plan under which all managers were partially compensated on the basis of the firm's profits. She suggested that maybe it was profit that was important to management, because it directly affected their pay. Dale said, "That doesn't make sense, because the stockholders own the firm. Shouldn't management do what's best for stockholders? Something's wrong!" Loren responded, "Well, maybe that explains why the company hasn't concerned itself with the stock price. Look, the only profits that stockholders receive are in the form of cash dividends, and this firm has never paid dividends during its 20-year history. We as stockholders therefore don't directly benefit from profits. The only way we benefit is for the stock price to rise." Dale chimed in, "That probably explains why the firm is being sued by state and federal environmental officials for dumping pollutants in the adjacent stream. Why spend money for pollution control? It increases costs, lowers profits, and therefore lowers management's earnings!" Loren and Dale realized that the lunch break had ended and they must quickly return to work. Before leaving, they decided to meet the next day to continue their discussion. TO DO

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

b. Does the firm appear to have an agency problem? Explain.

c. Evaluate the firm's 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 firm's owners despite its negative effect on profits?

d. Does the firm appear to have an effective corporate governance structure? Explain any shortcomings.

e. On the basis of the information provided, what specific recommendations would you offer the firm?

Reference no: EM131299676

Questions Cloud

Employ projective techniques to attempt to identify sources : Pick a brand. Employ projective techniques to attempt to identify sources of its brand equity. Which measures work best? Why?

Can you profile the brand personalities of the leading brand : Can you profile the brand personalities of the leading brands in the category using Aaker's brand personality inventory?

Analyse the various approaches for mitigating security risk : Specific issues that you need to address in the forum discussions are provided within the first 3 topics. Be able to critically analyse the various approaches for mitigating security risk, including when to use insurance to transfer IT risk

Conduct a branded and unbranded experiment : Choose a product. Conduct a branded and unbranded experiment.- What do you learn about the equity of the brands in that product class?

Does the firm appear to have an agency problem : Evaluate the firm's 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 firm's owners despite its negative effect on profits?

What do you think of the interbrand methodology : How do you think Young & Rubicam's Brand Asset Valuator relates to the Interbrand methodology? What do you see as its main advantages and disadvantages?

Images or diagram of sample products : For your midterm project complete the following using screenshots, images or diagram of sample products, processes, etc. to illustrate and descriptive texts to address the items below (you may also consult YouTube.com as a source) This is not a re..

Define a default constructor with no parameters : Define a default constructor with no parameters that will create the object with the following initial data values set: Loan identifier set to "" (an empty String).

How would you improve the companys branding strategies : Pick a company:- As completely as possible, characterize its brand portfolio and brand hierarchy. How would you improve the company's branding strategies?

User Account

All Pages