Asked by Melis Simge Benli on May 26, 2024
Verified
The textbook mentioned that managerial compensation sometimes creates an incentive to lease and that may create an agency problem. Explain this situation and how the agency problem might be addressed.
Managerial Compensation
The total package of benefits, including salary, bonuses, and incentives, provided to a manager for their services to an organization.
Agency Problem
The possibility of conflicts of interest between the shareholders and management of a firm.
- Review the implications of managerial and financial strategies in the decision to opt for leasing over buying.
Verified Answer
EM
Esmeralda MorenoMay 30, 2024
Final Answer :
The key points that students should mention are:
1) Buying an asset may affect the financial statements differently than leasing an asset.
2) The type of lease arrangement may affect how the financial statements are affected.
3) Some forms of managerial compensation are linked to figures on the financial reports.
4) Managers are to operate in a manner that "maximizes the current value per share of the existing stock" (See chapter 1).
5) Maximizing the value to the shareholder may not maximize the compensation of the managers.
1) Buying an asset may affect the financial statements differently than leasing an asset.
2) The type of lease arrangement may affect how the financial statements are affected.
3) Some forms of managerial compensation are linked to figures on the financial reports.
4) Managers are to operate in a manner that "maximizes the current value per share of the existing stock" (See chapter 1).
5) Maximizing the value to the shareholder may not maximize the compensation of the managers.
Learning Objectives
- Review the implications of managerial and financial strategies in the decision to opt for leasing over buying.
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