Which situation is more likely to induce agency costs

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Reference no: EM131916544

FINANCE- Must be plagiarism free and 100% original

Assignment Overview

This assignment will cover both the role of the financial manager as well as the introductory material on stock market investing. Make sure to fully review all of the required reading material before you begin this assignment. Note that all of the questions are conceptual in nature and will not require any computations (you will do plenty of computations for your Modules 1-3 Cases).

But make sure to thoroughly explain your reasoning behind each answer, and to support your answer using references to the required background readings.

Write a three- to five-page paper answering the following questions:

1. Suppose you own a small business. You have two choices on how to run the business. One is to manage the business yourself, the other is to hire a manager and spend your time vacationing in Hawaii most of the time. Which situation is more likely to induce agency costs, and what kind of ways could you use to deal with these agency costs? Explain your answer with references to the required background readings.

2. In your small business you have a finance department with a CFO, controller, and treasurer. For the following scenarios, explain which of these three financial executives would be the most likely to work on the issue based on the descriptions of the roles of the CFO, controller, and treasurer from Brealey, et al. (2009) in the background readings

a. You suspect that a lower-level employee has embezzled around $50,000 over the last three years and you want to try to find out who based on past financial records. Who would be most likely person to look into this issue - the CFO, the treasurer, or the controller?

b. Your chief marketing officer wants to take out a large loan to finance a major advertising campaign that he claims will bring in large sums of new profits over the next few years.

However, your chief operating officer wants to take out a large loan to purchase some new equipment and machinery that she claims will save your company a lot of money over the next few years.

You would like to see some estimates about which of the two projects will be most likely to increase profits enough to be able to pay back the loan. Who would be most likely person to look into this issue - the CFO, the treasurer, or the controller?

3. Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real versus financial assets in Brealey, et al. (2009).

a. A certificate of deposit at your local bank

b. A two-bedroom house

c. $50,000 worth of bonds from an airline company

d. Ownership of a copyright to a hit song

4. Do some research on Facebook and General Motors using a web page such as investing for financial information.

Based on their P/E ratios, dividend yields, and other information, compare and contrast these two stocks.

How would you classify these stocks: growth stock, a value stock, or an income stock?

Explain your reasoning using both concepts from the background readings as well as any information you find on these two companies. Your answer to this question should be 1 to 1-1/2 pages.

Assignment Expectations - ONLINE RESOURCES with Accessible Links ONLY

Answer the assignment questions directly.

• Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.

• For computational problems, make sure to show your work and explain your steps.

• For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. Other resources are allowed but must be accessible online.

REQUIRED REFERENCES:

Valentine, W. (2012). What is the P/E ratio? The Wealth Academy.

Smith, A. (2012). What's the difference between a growth stock and a value stock? The Motley Fool.

Editors of Kiplinger's Personal Finance. (2008). The basics for investing in stocks. South Carolina Attorney General.

Brealey, R., Myers, S., & Marcus, A. (2009). Chapter 1: Goals and governance of the firm. Fundamentals of Corporate Finance. McGraw-Hill.

Reference no: EM131916544

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