Question $1$

Within the context of financial management, it is important that organizations attempt to align their managers' interests with that of the shareholders. In Chapter $16,$ Berk and DeMarzo $(2020)$ provide several examples of agency conflict or a conflict between the owners and the management of a firm. Examples of these are: $($a$)$ at times managers will take on less $($greater$)$ risk than they would if they were the owners of the firm and $($b$)$ due to the separation of ownership and control managers are able to entrench themselves within firms and have little risk of being replaced. Provide a few examples of mechanisms that organizations could use to align the interests of both the owners of the firm and its managers.

Question $2$

Two of the $$workhorses$$ of capital budgeting are the Net Present Value $($NPV$)$ and the Internal Rate of Return $($IRR$)$ calculation. In practice, we rely on the NPV calculation to make our decisions; however, the IRR calculation is a useful calculation to employ when we attempt to compare projects. Highlight the three potential pitfalls that Berk and DeMarzo $(2020)$ outline and illustrate with an example how each of these issues would lead managers to make incorrect decisions about accepting a project. Include at least two citations that support your response.

Question $3$

In Berk and DeMarzo $(2020)$ the authors' interview David Holland, who at the time was a Senior Vice President and Treasurer of Cisco, in that interview he states that Cisco uses $$robust NPV analysis,$$ which means that the company integrates sensitivity and scenario analysis into their NPV calculations. Provide a simple example of a project and indicate how you might implement both a sensitivity and scenario analysis into your project$$s evaluation. Include at least two citations that support your response.