FIN515 W6 Problem Set
Week 6 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_6_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.
Chapter 29 (pages 983-984):
1. What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
The fact that investors are not the ones actually working within the company, causing conflicts of interest with what should be done with the money being invested, but this can also create a strongly-needed system of checks and balances, to make sure both parties are doing as they should.
2. What are some examples of agency problems?
Page 961 lists includes excessive perquisites, like investors using corporate jets for personal use, or employees slacking off because it’s not their company.
3. What are the advantages and disadvantages of the corporate organizational structure?
Corps are legal entity’s separate from owners, but also has many of the legal powers individuals have, like contracts, assets, and loans. It’s responsible for its own obligations, while the owners are not responsible for any. There is no limit to the number of shareholders, allowing a corp to raise money by selling stock, and the owners are entitled to dividend payments.
4. What is the role of the board of directors in corporate governance?
They are elected by shareholders, and have the ultimate decision-making authority. They hire the executive team, set compensations, approve major investments and acquisitions, and dismiss executives if necessary. In the US, they have a fiduciary duty to protect the owners interest in the firm, being the shareholders.
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_6_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.
Chapter 29 (pages 983-984):
1. What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
The fact that investors are not the ones actually working within the company, causing conflicts of interest with what should be done with the money being invested, but this can also create a strongly-needed system of checks and balances, to make sure both parties are doing as they should.
2. What are some examples of agency problems?
Page 961 lists includes excessive perquisites, like investors using corporate jets for personal use, or employees slacking off because it’s not their company.
3. What are the advantages and disadvantages of the corporate organizational structure?
Corps are legal entity’s separate from owners, but also has many of the legal powers individuals have, like contracts, assets, and loans. It’s responsible for its own obligations, while the owners are not responsible for any. There is no limit to the number of shareholders, allowing a corp to raise money by selling stock, and the owners are entitled to dividend payments.
4. What is the role of the board of directors in corporate governance?
They are elected by shareholders, and have the ultimate decision-making authority. They hire the executive team, set compensations, approve major investments and acquisitions, and dismiss executives if necessary. In the US, they have a fiduciary duty to protect the owners interest in the firm, being the shareholders.