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Identifying agency problems, costs, and resolutions Explain why each of the following situations is an agency problem and what costs to the firm might result from it. Suggest how the problem might be handled short of firing the individual(s) involved.
a. The front desk receptionist routinely takes an extra 20 minutes of lunch time to run personal errands.
b. division managers are padding cost estimates so as to show short-term efficiency gains when the costs come in lower than the estimates.
c. The firm’s chief executive officer has had secret talks with a competitor about the possibility of a merger in which she would become the CEO of the combined firms.
d. A branch manager lays off experienced full-time employees and staffs customer service positions with part-time or temporary workers to lower employment costs and raise this year’s branch profit. The manager’s bonus is based on profitability.
A firm is anticipated to produce a $10,000 cash flow in year 1, $2,500 cash flows in years 2 through 4, and then will pay a steady stream of $1,250 cash flows into the foreseeable future (i.e. forever). Also, the firm has a weighted average cost of c..
If everyone followed the rules and guidelines of logic, would there be a need for ethical decision making? Why?
Warmack Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $450,000 is estimated to result in $180,000 in annual pretax cost savings
What is net working capital? Why should it be considered an investment that a firm must make to increase its future profitability? What is the fundamental financing problem in international trade?
Diamond Eyes, Inc., has sales of $21 million, total assets of $18.3 million, and total debt of $9.5 million. Assume the profit margin is 9 percent. What is net income? (Enter your answer in dollars not in millions, i.e. 1,234,567.) Net income $ What ..
You place an order for 320 units of inventory at a unit price of $180. The supplier offers terms of 3/15, net 30. How long do you have to pay before the account is overdue? a-2 If you take the full period, how much should you remit? What is the disco..
Erin McQueen purchased 50 shares of BMW, a German stock traded on the Frankfurt Exchange, for 64.5 euros (€) per share exactly 1 year ago when the exchange rate was 0.67 €/US$. Today the stock is trading at 71.8 (€) per share, and the exchange rate i..
The World Trade Organization (WTO) several years ago considered a dispute between Boeing an American aircraft manufacturer and Airbus an EU aircraft manufacturing entity
Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value. What is the company's pre-tax cost of debt?
The following three defense stocks are to be combined into a stock index in January 2013 (perhaps a portfolio manager believes these stocks are an appropriate benchmark for his or her performance). Assume the index is scaled by a factor of 10 million..
Construct a pro forma income statement for the first year and second year for the following assumptions: In year 2, Price per unit increases to $11.50, and unit of sales increases by 5%, all other assumptions remain the same.
You will receive a $100,000 inheritance in 20 years. Your investments earn 6% per year, compounded annually. To the nearest hundred dollars, what is the present value of your inheritance?
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