How could given example illustrate the agency problem

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Reference no: EM131200305

Gill Bates is the CEO of a large company. His compensation is based on current profitability. He's considering undertaking one of two investments available to the company:

(a) one that yields profits of $500 million in each of the next 5 years and none thereafter, and

(b) one that yields annual profits of $300 million over 20 years. He selects the first investment. How could this example illustrate the agency problem?

Reference no: EM131200305

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