Sam has been the CEO of Fod Ltd, a listed car manufacturing company, for 20 years. Fod Ltd, together with few other companies in the car manufacturing industry are currently lobbying the government for more subsidies to protect their industry from overseas competitions. One of these companies' main arguments is that their profits are greatly eroded due to the unfair competitions made by overseas competitors. The government will reach their decision by the end of the year.

However, Sam is about to retire at the end of this year. At the start of this year, Sam's company is considering investing in an electric engines-related project. There are two investment options. Both require an immediate cash spending of $1 million. However, the first option will result in an estimated profit of $0 by the end of the year and an estimated profit of $5 million in two years' time, while the second option will result in an immediate estimated profit of $500,000 by the end of the year and an estimated profit of another $500,000 in two years' time. Sam has the discretion to pick either of the projects.

(a)Identify and explain at least three possible agency relationships that could be present in Sam's firm.

(b)When choosing the projects, would Sam prefer option one or option two? Would the company's shareholders prefer option one or option two?