the other options are short term or long term

Assignment 01 - An Overview of Financial Management Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her principal. In large corporations, these conflicts most frequently involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do not have sufficient information about the decisions and actions being made by the firm's management. Consider the following scenario and determine whether an agency conflict exists: Daniel owns Daniel's Tantalizing Tees, a T-shirt shop in a small college town in Kansas. With a staff of three part-time employees, Daniel operates the business in accordance with his personal goals, dreams, and capabilities. Does Daniel have an agency conflict to deal with? No; by having part-time, as opposed to full-time, employees, Daniel is prevented from experiencing an agency conflict. Yes; as both the owner and operator of Daniel's Tantalizing Tees, Daniel has created the necessary agency relationship through which an agency conflict can exist. Yes; there is always an inherent conflict of interest between owners and operators (managers). No; as both the owner and operator of Daniel's Tantalizing Tees, Daniel has not created the necessary agency relationship through which an agency conflict can exist. For the past 40 years, companies have attempted to attract, retain, and encourage managers by developing attractive compensation packages. These compensation packages have also been intended to reduce potential agency conflicts between these managers and the firm's shareholders. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the value of the company's common stock price. Edinburgh Industrial's stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Edinburgh Industrial's stock, direct shareholder intervention would be likely to motivate th firm's management. less more