Financial Ratios and Division Managers
P1-5 A) The front desk receptionist routinely takes an extra 20 minutes of lunch to run personal errands.
Agency Problem: she took an extra 20 minutes to do her personal errands instead of working, which she puts her own self interests before the best interests of the company.
Occurred cost: the salary that the company pays to her. The solution would depend on the boss on her work performance in the past. If she has an important personal errand to do during that time, then boss might need to talk to her and explain the solution for her. This problem can be final dealt by clocking-in and clocking-out even time for lunch hours.
B) Division managers are padding cost estimates so as to show short-term efficiency gains when the costs come in lower than the estimates.
Agency Problem: Division managers use their authority to mislead information and a problem exists when management and stockholders have conflicting ideas on how the company should be run in short-term. It will mess up the management in order to plan costs. Also it might ruin the number balance sheets and which could affect future gains. This might mean that the division managers who wish to engage in capital expenditures can now secure a short-term benefit from lower estimates.
Occurred cost: The solution is management should monitor division managers performance and might give managers the performance shares which result in meeting the stated performance goals. These goals must be more efficient and accurate in order for management to plan goal to generate profit.
Agency cost: By reducing and by providing appropriate incentives to align the interests to division managers.
C) The firm’s chief executive officer has secret talks with a competitor about the possibility of a merger in which he would become the CEO of the combined firms.
Agency Problem: The chief executive officer risks negative behavior because of dealing with the competition and did not involve his company’s best
Agency Problem: she took an extra 20 minutes to do her personal errands instead of working, which she puts her own self interests before the best interests of the company.
Occurred cost: the salary that the company pays to her. The solution would depend on the boss on her work performance in the past. If she has an important personal errand to do during that time, then boss might need to talk to her and explain the solution for her. This problem can be final dealt by clocking-in and clocking-out even time for lunch hours.
B) Division managers are padding cost estimates so as to show short-term efficiency gains when the costs come in lower than the estimates.
Agency Problem: Division managers use their authority to mislead information and a problem exists when management and stockholders have conflicting ideas on how the company should be run in short-term. It will mess up the management in order to plan costs. Also it might ruin the number balance sheets and which could affect future gains. This might mean that the division managers who wish to engage in capital expenditures can now secure a short-term benefit from lower estimates.
Occurred cost: The solution is management should monitor division managers performance and might give managers the performance shares which result in meeting the stated performance goals. These goals must be more efficient and accurate in order for management to plan goal to generate profit.
Agency cost: By reducing and by providing appropriate incentives to align the interests to division managers.
C) The firm’s chief executive officer has secret talks with a competitor about the possibility of a merger in which he would become the CEO of the combined firms.
Agency Problem: The chief executive officer risks negative behavior because of dealing with the competition and did not involve his company’s best