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:
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.
Suppose your company raises funds from outside lenders. What
type of agency costs might occur? How might lenders mitigate the agency costs?
What is corporate governance? List five corporate governance
provisions that are internal to a firm and are under its control.
Briefly describe the use of stock options in a compensation
plan. What are some potential problems with stock options as a form of
compensation?
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, using the
following rubric.
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