Homework #1
Silawat Songvasin (Rock)

what is agency problem? List some mechanisms through which agency problem can be mitigated.

Agency main problem enough Finance to fund their project and to keep their company operating. Money can come from in many way depend on the firm credit to finance market, their idea etc. Fist way of rising fund is to find investor, by selling firm idea and expressing how firm can make money back. Issuing stock or IPO is a famous way of getting huge amount of finance but in order to does so company need to pass certain regulation. Issuing a bond is also common among big firm since customer know that the odd of company going bankrupt is very low

Discuss why each of the following may not be appropriate corporate goals? 1) Increase market share. Increase market share may be a good idea but it may harm the firm if it needs to spend money to do so like advertising or reducing cost so it can penetrate into the market. Especially where it is competitive industry which will require a lot more money. 2) Minimize costs. Minimize cost may gain company customer or more market share but doing so will reduce the firm profit and may hurt the firm brand image 3) Expand profit. Expanding profit should not be firm goal because firm cannot clarify which year they want to expand their profit, thus it should be every year. Investing more in the profit may be a good long term strategy but this will reduce a return to shareholder. However as a value investor I love this idea.

Describe the difference between Corporation and Sole Proprietorship. [Hint: Please review our lecture notes slides and answer from four categories: Who owns the business? Are managers and owners separate? What is the owner’s liability? Are the owner & business taxed separately?]

For cooperation the person who owns the most