Problem:
How does the firm you work for control its agency problem? In other words, how does your company ensure that your top executives work in the best interest of the firm rather than in their own best interest? How would you change the requirements for your top management's bonus? (I work at a motel as an assistant manager)
Do problem ST2 on page 356. Using your answer to ST2 rounded to the nearest percent, compute the NPV of a project that cost $10,000 and generates $3,000 a year for 4 years.
Problem 2:
(Weighed average cost of capital) The capital structure for the Carion Corporation is provided here. The company plans to maintain its debt structure in the future. If the firm has a 5.5 percent after-tax cost of debt, a 13.5 percent cost of preferred stock, and an 18 percent cost of common stock, what is the firm's weighed average cost of capital?
Capital Structure ($000)
Bonds $1,083
Preferred Stock 268
Common Stock 3,681
Total $5,032