How to answer potential investors, accounting homework help

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Directions:
Explain how you reached the answer or show your work if a mathematical
calculation is needed, or both. Submit your assignment using the
assignment link above.

In your own words, complete the Mini-Case on Page 562 of your textbook.

Suppose
you decide (as did Steve Jobs and Mark Zuckerberg) to start a company.
Your product is a software platform that integrates a wide range of
media devices, including laptop computers, desktop computers, digital
video recorders, and cell phones. Your initial market is the student
body at your university. Once you have established your company and set
up procedures for operating it, you plan to expand to other colleges in
the area and eventually to go nationwide. At some point, hopefully
sooner rather than later, you plan to go public with an IPO and then to
buy a yacht and take off for the South Pacific to indulge in your
passion for underwater photography. With these issues in mind, you need
to answer for yourself, and potential investors, the following
questions.

  1. What is an
    agency relationship? When you first begin operations, assuming you are
    the only employee and only your money is invested in the business, would
    any agency conflicts exist? Explain your answer
  2. If you expanded and hired additional people to help you, might that give rise to agency problems?
  3. Suppose
    you need additional capital to expand and you sell some stock to
    outside investors. If you maintain enough stock to control the company,
    what type of agency conflict might occur?
  4. Suppose your company
    raises funds from outside lenders. What type of agency costs might
    occur? How might lenders mitigate the agency costs?
  5. Suppose
    your company is very successful and you cash out most of your stock and
    turn the company over to an elected board of directors. Neither you nor
    any other stockholders own a controlling interest (this is the situation
    at most public companies). List six potential managerial behaviors that
    can harm a firm’s value.
  6. What is corporate governance? List five corporate governance provisions that are internal to a firm and are under its control.
  7. What characteristics of the board of directors usually lead to effective corporate governance?
  8. List three provisions in the corporate charter that affect takeovers.
  9. Briefly
    describe the use of stock options in a compensation plan. What are some
    potential problems with stock options as a form of compensation?
  10. What is block ownership? How does it affect corporate governance?
  11. Briefly explain how regulatory agencies and legal systems affect corporate governance.
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