Q.1 write a reply for this article (Hugo)
I chose to talk about IParents.com. A company based out of Wyncote, PA. It was a place where family members could interact with each other online, share files, pictures, and coordinate activities. It was kind of like Facebook. They had about 70,000 members which caught the eyes of investors who asked for 100,000 members to invest 3 million dollars in the company.
What went wrong and the company lacked off was capital budgeting and too much time and money was spent in enhanced software like text alert reminders about appointments and turning pictures into magnet pictures for the refrigerator. This can be seen as poor decision by management to invest the money in expanding the company and not doing research on the opportunity that risk would present.
Q.2. write a reply for this article (Luk)
The management of corporate finance acts as an agent for its shareholders by making decisions to increase the wealth of the shareholders. When there is a conflict of interest between a large company’s management and stockholders, it results in agency problems. Agency problems are common in fiduciary relationships, such as trustees and beneficiaries; board members and shareholders; and lawyers and clients.
One of the reasons for this agency problem is that owners or stockholders do not want to be involved in the day-to-day operations of the company. And the management of large corporations may not know the goals of the stockholders due to this separation. In addition, the management might make decisions incentivizing themselves and in their best interest to maximize their own wealth.
Agency problems can be minimized by incentivizing an agent to make decisions favorable to the shareholder’s or principal’s interests. Principal-agency relations can be regulated by putting contracts or laws in place so that the agent will put the client’s interest above their own. The expense involved in taking these steps by principals to minimize the risk of agency problems is called agency cost.
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