1. Do you agree with the following statement? Explain.
2. You are the owner and CEO of a large divisionalized firm, with operations in a number of diverse industries. Reporting to you are a number of division managers. Division managers have considerable decision-making responsibility with respect to the day-to-day operations of their divisions, but you must approve any capital investments above $100,000 before they are made.
a. As owner, what type of capital investments would you like your division managers to be proposing to you?
b. Is there a potential agency problem between you, as owner, and your division managers with respect to capital investments? What is the nature of that problem? Why is it a problem?
c. How might you attempt to solve that agency problem?
d. Do you think you can solve the problem entirely? Why or why not?