Set 3 Homework

Directions: Answer the following questions in a  separate document. Explain how you reached the answer or show your work  if a mathematical calculation is needed, or both. Submit your  assignment using the assignment link above.


Suppose  you decide (as did Steve Jobs and Mark Zuckerberg) to start a company.  Your product is a software platform that integrates a wide range of  media devices, including laptop computers,  desktop computers, digital video recorders, and cell phones. Your  initial client base is the student body at your university. Once you  have established your company and set up procedures for operating it, you  plan to expand to other colleges in the area and eventually to go  nationwide. At some point, hopefully sooner rather than later, you plan  to go public with an IPO and then to buy a yacht and take off for the  South Pacific to indulge in your passion for underwater photography.  With these plans in mind, you need to answer for yourself, and potential investors, the following questions:

  1. What  is an agency relationship? When you first begin operations, assuming  you are the only employee and only your money is invested in the  business, would any agency conflicts exist? Explain your answer.
  2. Suppose  your company raises funds from outside lenders. What type of agency  costs might occur? How might lenders mitigate the agency costs?
  3. What is corporate governance? List five corporate governance provisions that are internal to a firm and are under its control.
  4. Briefly  describe the use of stock options in a compensation plan. What are some  potential problems with stock options as a form of compensation?
  5. Briefly explain how regulatory agencies and legal systems affect corporate governance.

Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills.