Presentation IFM chp 8.

Presentation IFM chp 8. - 8.5 Agency Costs According to...

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8.5 Agency Costs According to Modigliani and Miller when investment opportunities yield a positive Net present value it satisfies their investment criterion and should therefore be undertaken. However, in scenarios where financial distress is a possibility this rule may actually act in the disinterest of of debt, equity, or management due to self interest. Next slide. Agency conflicts arise when there are different interests between managers and stakeholders. Agency costs are the costs of ensuring managers act in the interest of other stakeholders. Managers vs. Debt and equity stakeholders 1)Interests 2)Risk What I explain: These costs are necessary because managers rely more heavily upon their employers prosperity and therefore concerned with the risk facing the company. Whereas debt and and equity holders are more diversified and are concerned with the risk of their overall portfolio. Next slide.
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Presentation IFM chp 8. - 8.5 Agency Costs According to...

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