Bill Jobs has decided to start a computer company called CompU in Joplin. He kno
ID: 2655195 • Letter: B
Question
Bill Jobs has decided to start a computer company called CompU in Joplin. He knows that many MSSU students, who are now required to own and operate a personal computer, are having difficulty setting up their computers, accessing various materials from MSSU’s network and from the internet, and installing new programs as they become available. Bill’s plan is to provide a service to the students by helping students set up their computers, show them how to access various databases, and offer an e-mail help desk for any problems that arise. Bill also wants to develop a website that will be a seamless portal to the internet and the campus intranet.
If things go well, Bill plans to sell computers with all the required software preinstalled to students, and develop the website that includes links to various businesses and services that students like, and to offer advertising services (and charge for the links) to local businesses. For example, a student could use the web site to order pizza delivery while studying for a financial management exam.
Once Bill has established CompU and developed the necessary operating procedures, he plans to expand to other colleges and universities in the area, and eventually go nationwide. At some point Bill plans to take CompU public with an IPO.
1. When Bill first begins CompU, if he is the only employee and only his money is invested in the company, would any agency problems exist? As he expands and hires additional people at CompU, might agency problems arise? When Bill first begins, what type of business organization will CompU be?
2. If Bill needs capital to buy his computer inventory to sell to students or develop software to run the website and the business, might this lead to agency problems? Would it matter if the new capital came in the form of an unsecured bank loan, a bank loan secured by the inventory, or from new stockholders (if Bill incorporates CompU)? What other sources of capital could Bill use?
3. Would potential agency problems increase or decrease if Bill expands operations to other campuses? Would the agency problems be affected by whether he expands by licensing franchisees or by direct expansion, where CompU actually owns the businesses on other campuses and operates them as divisions of CompU?
4. What action or actions can you think of that might minimize agency problems for CompU as Bill expands beyond MSSU? Would going public in an IPO increase or decrease agency problems?
5. If CompU is successful, what kind of compensation program could Bill use to minimize agency problems?
6. If Bill hires someone whom he can train to manage one of the new divisions he plans to open at other campuses, would it matter whether or not that person understood something about financial management? If two people were applying for a job that would lead to a managerial position, should Bill be interested primarily in the person’s technical skills or in a combination of technical skills and a vision of how different functions within CompU fit together?
7. CompU is successful, and the before-tax earnings for the first year are $90,000. Calculate the tax on these earnings using Table 2.1.
Explanation / Answer
Answer:
2. If Bill needs capital to buy his computer inventory to sell to students or develop software to run the website and the business, might this lead to agency problems? Would it matter if the new capital came in the form of an unsecured bank loan, a bank loan secured by the inventory, or from new stockholders (if Bill incorporates CompU)? What other sources of capital could Bill use?
Answer:Bill needing capital could potentially lead to agency problems if he does not stay focus of financial manager goal which is maximising the shareholders wealth.It would not really make a difference where bill got his new capital form as long as he had the proper documentations.The other sources of capital that can be used broker market and securities exchange.
3.. Would potential agency problems increase or decrease if Bill expands operations to other campuses? Would the agency problems be affected by whether he expands by licensing franchisees or by direct expansion, where CompU actually owns the businesses on other campuses and operates them as divisions of CompU?
Answer:I believe that agency problems increase if bills expands to other campuses, because he will no longer be able to be to manage all the agencies to make sure that they keep the key goal in mind.Agency problems would become individual for franchisees but i think they would definitely come at a greater rate.
4. What action or actions can you think of that might minimize agency problems for CompU as Bill expands beyond MSSU?
Answer: Having a partnership or a board so that he is no longer sloely responsible for everything.This would take the pressures of him when it comes to agency problems.
Would going public in an IPO increase or decrease agency problems?
Answer: Going public would definitely increase agency problems because it allows the managers not to focus on shareholders wealth.
5. If CompU is successful, what kind of compensation program could Bill use to minimize agency problems?
Answer: Incentive plans,Stock options,Performance plans,Performance shares and cash bonuses.
6. If Bill hires someone whom he can train to manage one of the new divisions he plans to open at other campuses, would it matter whether or not that person understood something about financial management?
Answer: If he has the correct training he should get the best financial management background as possible, he or she should understand some financial aspects.
If two people were applying for a job that would lead to a managerial position, should Bill be interested primarily in the person’s technical skills or in a combination of technical skills and a vision of how different functions within CompU fit together?
Answer: Two is always better than one i believe taht the best candidate should have a mixture of both, this way they will have an all - around idea of what everyone does.
7. CompU is successful, and the before-tax earnings for the first year are $90,000. Calculate the tax on these earnings using Table 2.1.
Answer:13570+(34%*(90000-75000))
13570+(34%*15000)
13570+5100
18670
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