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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.
The wet corp has an investment project that will reduce expenses by $25,000 per year for three years. The project's cost is $55,000. If the asset is part of the three-year MACRS category (33% first year depreciation) and the company's tax rate is 34%..
The asking price for a suburban office building is $5,000,000; rents are estimated at $550,000 during the first year and are expected to grow at 2 percent per year thereafter. Calculate the effective gross income (EGI) and the net operating income (N..
avantimedia is the wholly owned italian affiliate of abc a u.s. based multinational firm.avantimedia produces projector
Consider a common stock with the following expected dividends: $2 in one year (i.e., at t=1), $3 in two years (at t=2), $0 in three years (at t=3), $2 in four years (at t=4) and $5 in five years (at t=5).
You have $2000 to invest, and are choosing between two projects, both of which cost $2000 up front and will yield six years of returns. The returns for the first investment will be paid in nominal $, starting at $400 a year from now and increasing at..
Jim Green’s father-in-law, who lives in California, would like Jim to move out from Tempe to California so he could see his grandchildren more often. Jim Green argues that housing is too expensive in California. Spouse’s pop responds: Does Jim Green’..
Tom's portfolio consists solely of an investment in Merck stock. Merck has an expected return of 13% and a volatility of 25%. The market portfolio has an expected return of 12% and a volatility of 18%. The risk-free rate is 4%. Assume that the CAPM a..
You must evaluate a proposal to buy a new milling machine. The base price is $142,000, and shipping and installation costs would add another $20,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $56,800. What ..
One year ago, the Jenkins family fund center deposited $4,900 in an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $6,700 to this account. They plan on making a final deposit of $8,900..
A firm has debt of $90,000, equity of $140,000, a leveraged value of $100,000, a cost of debt of 6%, a cost of equity of 12%, and a tax rate of 40%. What is the firm's weighted average cost of capital?
The prices of longer-term bonds are more volatile than the prices of shorter-term bonds with the same coupon. The prices of bonds with smaller coupons are more volatile than bonds with larger coupons for the same term to maturity.
What is the price of an annual coupon bond whose par value is 1,000, that pays interest of 7%, has a maturity of eight years, and whose yield to maturity is 6.5%? What is the yield to maturity of a bond whose price is 1,200, whose par value is 1,000,..
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