03_Overheads - Objectives for today In-class Activity...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ACC 333 (Farrell), Fall 2011, Class 03 1 ACC 333 (Far el ) Fal 2011, Class 03 1 Objectives for today In-class Activity Agency theory The players The conflict and resulting problems Easing agency problems Potential solutions Analyze benefits & costs (“agency costs”) of solutions Link between agency problems, agency costs, & accounting ACC 333 (Far el ) Fal 2011, Class 03 2 In-class Activity Stock options: The good, the bad, and the ugly? ACC 333 (Far el ) Fal 2011, Class 03 3 Who bears the cost of bad decisions? Assume a company's earnings per share is $1.50 A manager holds 500,000 options, so her share of net income (before leasing a condo) is: 500,000 x $1.50 = $750,000 If the manager leases the $3,000,000 condo, the company's earnings per share will go down to $1.49 And the manager's new share of net income is: 500,000 x $1.49 = $745,000 So part of the manager’s cost of the decision is $5,000 What other costs might there be? Do these offset the benefits of having use of the condo?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ACC 333 (Farrell), Fall 2011, Class 03 2 ACC 333 (Far el ) Fal 2011, Class 03 4 Agency theory The players: Organizational decisions are: – delegated to “ agents ” (i.e., managers) – by the “ principals ” (usually shareholders or lenders, but can be other stakeholders), who want the agents to act on their behalf to reach the principals’ goals This creates a “ principal-agent relationship ACC 333 (Far el ) Fal 2011, Class 03 5 Agency theory (continued) What conflict occurs because of this arrangement?
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

03_Overheads - Objectives for today In-class Activity...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online