East Coast Yachts Case

Identify three fundamental types of decisions that financial managers make and identify which part of the balance sheet each of these decisions affects.

1)Capital budgeting
: Capital budgeting is the decision which is important in long-term. In a business, it is required to asses and evaluate potential capital or investments. That would leads a company to have maximized benefits. Building new facilities or expanding a training program are one of the examples. Long-term assets is categorized as this type of fundamental decision in balance sheet.

There are four basic divisions of financial management one planning, two controlling, three reorganizing and directing and four decision making. The reason for four separate divisions are based on the purpose of each task.

Agency Problem: “The difficulties that arise when a principal hires an agent and cannot fully monitor the agent’s actions.” (Cornett, Adair, & Nofsinger, 2016, p. 15).

The scope of this paper is to analyze the kind of agency problems that emerges between The Hershey Company and their stakeholders and shareholders. To answer this, a review of the company`s board structure and ownership structure was made. Thereafter two specific situations that has occurred in recent times was used as case examples to enlighten the agency problems suggested to emerge by the corporate structure.

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

Describe an agency problem within the firm and discuss what you think is causing the problem and how the problem might be better controlled.

Our textbook defines an agency problem as a “conflict between the goals of a firm’s owners and its managers” (Megginson & Smart, 2009). It then defines agency costs as dollar costs that arise because of this conflict. In the corporate structure, stockholders are the owners of the firm, and they elect a board of directors to oversee the firm and help protect their investment. The board then hires the right corporate managers to run the firm with the goal of maximizing the wealth of the

Most corporate financing decisions in practice reduce to a choice between debt and equity. The finance manager wishing to fund a new project, but reluctant to cut dividends or to make a rights issue, which leads to the decision of borrowing options. The issue with regards to shareholder objectives being met by the management in making financing decisions has come to become a major issue of recent times. This relates to understanding the concept of the agency problem. It deals with the separation of ownership and control of an organisation within a financial context. The financial manager can raise long-term funds internally, from the company’s cash flow, or externally, via the capital market, the market for funds

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

Agency problems are said to be inherent in the corporate form of an organization. Why

Agency issues arise when one party (principal) gives another party (agent) an authority to act on his behalf. In this context, the principal is the investor while the professional hedge fund

Agency problem is a potential conflict between the agent and shareholders in the interest. It is shown that ownership is separated from management. This cause not only is the divergence of ownership and control, but also the information is asymmetrical. When ownership is separated

Gwendolyn, you made a good point when you stated “Yes, Wells Fargo has an agency problem because the managers put their personal goals before the corporate goals”. When a company such as Wells Fargo fired more than 5,300 related to bad employee practices or creating accounts that were without the customer consent, the company was headed downhill (Eagan, 2016). Gwendolyn, many companies of today have begun to hire more seasoned managers that have an economic look, that become tougher during the assignment. A company called Kool-Span found out that they by hiring candidate with decades of experience versus only a limited on the job has paid off tremendously. When dealing with the IT department for the company, it was noticed that a seasoned

Agency costs are inevitable within an organization whenever shareholders are not completely in charge; the cost can usually be best spent on providing proper material incentives and moral incentives for agents to properly execute their duties, thereby aligning the interests of shareholders (owners) and agents.

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a