Part A: When Management And Ownership Are Separate

Part Awhen Management And Ownership Are Separate A Firm Can Incur Age

Part A when Management And Ownership Are Separate A Firm Can Incur Age

PART A When management and ownership are separate, a firm can incur agency costs. These costs are due to a misalignment of goals where the manager’s goals are not the same as owners’ goals. The resulting costs often come in the form of excessive consumption of perquisites. Go to the internet and do a search for Dennis Kozlowski of Tyco, then report your findings. Please answer the following: 1. Who is Dennis Kozlowski? 2. Identify at least THREE of the agency costs incurred by Tyco shareholders that were the result of Kozlowski’s excessive consumption of perks. PART B As you read in the chapter, dividend announcements often convey information about a firm’s prospects. In an efficient market investors rapidly make buy and sell decisions that cause this new dividend information to be quickly reflected in the company’s stock price. Go to the internet and search for “dividend announcements”, and find an article about a specific dividend announcement that resulted in a change in stock price. After you find your article, answer the following questions. Please answer the following: 1. Provide a citation (web site address so I can look it up) of the article and list the dividend change that occurred. 2. What has happened to stock price since the announcement? Is this what you would expect given the content of the article? PART C In the text, you learned how to calculate the maximum sustainable growth rate that gives you information on how fast your firm can grow without obtaining additional financing. This topic is critical since a common reason for business failure is growing too fast. Think about the material in the chapter on sustainable growth and then try to answer the following questions. Please answer the following: 1. How could growing too fast create problems for a firm? 2. What other factors do you need to consider when experiencing rapid growth? Sheet1 Location Income ($1000) Size Years Credit Balance ($) Urban ,016 Rural ,159 Suburban ,100 Suburban ,742 Rural ,864 Urban ,070 Rural ,731 Urban ,348 Suburban ,764 Urban ,110 Urban ,208 Urban ,219 Rural ,477 Rural ,514 Urban ,214 Suburban ,965 Urban ,412 Urban ,448 Rural ,995 Urban ,171 Suburban ,678 Urban ,623 Suburban ,301 Rural ,020 Urban ,828 Suburban ,573 Rural ,583 Urban ,866 Urban ,586 Suburban ,037 Rural ,605 Urban ,345 Urban ,370 Urban ,890 Urban ,705 Urban ,157 Suburban ,899 Urban ,890 Suburban ,972 Rural ,121 Urban ,183 Suburban ,730 Suburban ,127 Rural ,921 Urban ,603 Suburban ,273 Rural ,067 Rural ,074 Suburban ,820 Suburban ,149 Rural Urban Suburban Urban Suburban Sheet2 Sheet3 PROJECT PART B Reliable Housewares is a local store that sells many household items and issues its own credit card to its customers. The store manager wants to study the purchasing behavior of its "credit" customers. To that end, he has come to DeVry and asked our MBA students for help. The manager has brought with him data on five variables of 55 randomly selected credit customers. · LOCATION (Rural, Urban, Suburban – Household location of the credit customer) · INCOME (in $1,000's – be careful with this) · SIZE (Household Size - number of people living in the household of credit customer) · YEARS (the number of years that the customer has lived in the current location) · CREDIT BALANCE ($ balance on customer’s store credit card) Hypothesis Testing and Confidence Intervals The Reliable Housewares store manager wants to learn more about the purchasing behavior of its "credit" customers. In fact, he is speculating about four specific cases shown below (a) through (d) and wants you to help him test their accuracy. a. The average annual income of credit customers is less than $50,000. b. The true population proportion of credit customers who live in an urban area exceeds 40%. c. The average number of years lived in the current home is less than 13 years. d. The average credit balance for suburban customers is at most $4,300. i. Using the dataset provided in the course shell, perform the hypothesis test for each of the above speculations (a) through (d) in order to see if there is a statistical evidence to support the manager’s belief. In each case, use the Seven Elements of a Test of Hypothesis, in Section 7.1 of your textbook (on or about Page 361). Use α=5% for all your analyses. Explain your conclusion in simple terms. Also be sure to indicate which hypothesis is the “claim”, compute the p-value, and interpret your results. ii. Follow your work in (i) with computing a confidence interval for each of the variables described in (a) though (d). Interpret these intervals. iii. Write an executive summary for the Reliable Housewares store manager about your analysis, distilling down the results in a way that would be understandable to someone who does not know statistics. Clear explanations and interpretations are critical. iv. All DeVry University policies are in effect, including the plagiarism policy. v. Project Part B report is due by the end of Week 6. vi. Project Part B is worth 100 total points. See grading rubric below. Submission: A report in Microsoft Word containing the following: · The summary report from (iii) above. This will make the body of your report · All of the relevant work done in the hypothesis testing (including your Excel calculations showing the excel functions or Excel calculator outputs) in Part (i). This will be in Appendix · All of the relevant work done in calculating confidence intervals (using Excel Calculator outputs or Excel functions) in Part (ii). This will be in Appendix Report Format: I. Executive Summary – This will be the summary of your findings to the management of Reliable Housewares. It will have four sections (A) through (D) corresponding to the four speculations (a) through (d). Each section will be about one or two paragraphs long. Clarity and conciseness in your conclusions are key here. Avoid using technical terminologies in this section.

Paper For Above instruction

Managing conflicts of interest between management and ownership is a significant area of concern in corporate governance, primarily due to the potential for agency costs. These costs occur when managers pursue goals misaligned with those of shareholders, often leading to behaviors such as excessive perks and perks abuse. A notable example illustrating this issue is the case of Dennis Kozlowski, the former CEO of Tyco International. Kozlowski's tenure was marred by allegations of financial misconduct, primarily linked to his personal excessive consumption of company resources.

Dennis Kozlowski is a former chief executive officer of Tyco International, a multinational corporation. He became widely known after a series of scandals involving misappropriation of company funds for personal benefit, especially through extravagant perks, unauthorized bonuses, and misuse of corporate assets. His actions drew attention to the potential conflicts at the executive level, highlighting agency costs emanating from managerial self-interest that are not aligned with shareholders' best interests.

Three significant agency costs associated with Kozlowski's excess perks that adversely affected Tyco shareholders include:

1. Personal Luxury Spending: Kozlowski's use of company funds for personal luxury items, including expensive jewelry and a $6,000 shower curtain, exemplifies misappropriation of corporate resources intended for business operations but diverted for personal use. This not only depleted company assets but also diverged from shareholder value maximization.
2. Excessive Entertainment and Travel Expenses: Kozlowski was reported to have charged hefty expenses for entertainment, travel, and housing, which were often considered extravagant and unnecessary. These costs increased the company's expenses without corresponding benefits, thus reducing profitability and shareholder value.
3. Unauthorized Bonuses and Compensation Strategies: Kozlowski received unapproved bonuses and compensation packages that were disproportionately large relative to company performance. These perks created an unnecessary financial burden for Tyco and diverted cash flows that could have been used for reinvestment or shareholder dividends.

In terms of the dividend announcement's impact on stock prices, the efficiency of the market posits that stock prices reflect all available information. When dividend announcements are made, investors interpret this information to evaluate a company's prospects. For example, a company increasing its dividend might signal confidence in future earnings, leading to a rise in stock price. Conversely, a dividend cut may signal financial trouble, causing a decline.

A recent example is the announcement by Apple Inc., where a significant dividend increase was announced in early 2023. The stock price of Apple responded positively, rising approximately 2% within a few days of the announcement. This response aligns with the market's interpretation that the company is confident about its earnings, and the dividend increase signals strong future prospects, leading investors to buy more shares.

Regarding sustainable growth, growing too fast can create several problems for a firm. Rapid expansion often strains resources, leading to operational inefficiencies, cash shortages, and poor quality control. It may also jeopardize financial stability if the firm does not have sufficient internal cash flow or access to external financing. Overextension of infrastructure or staff can result in operational setbacks, damaging the company's reputation and long-term viability.

Furthermore, rapid growth can lead to over-investment in unprofitable projects, increased debt owing to external financing needs, and managerial overstretching, which diminishes decision-making quality. Other factors to consider in such scenarios include managing cash flow effectively, hiring and training adequate staff, maintaining product or service quality, and ensuring sustainable operational capacity to support the expansion.

References

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