What steps could dave and the syndicate take to minimize

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Reference no: EM131500935

Your friend Dave wants to open an ice cream stand. He knows the business, and you know him to be honest and generally hard working. He needs $50,000 but has only $3,000 or his own to invest. You are thinking of forming a syndicate of stockholders; each of the 20 of you would put up $2,350 to make up the other $47,000, and Dave would get a 10% share of the profits (as well as a reasonable salary for Dave).

(a) What agency (moral hazard) problems do you see in this arrangement?

(b) What steps could Dave and the syndicate take to minimize those problems?

Reference no: EM131500935

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