Mini Case 2
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 market 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 issues 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.
- If you expanded and hired additional people to help you, might that give rise to agency problems?
- Suppose you need additional capital to expand and you sell some stock to outside investors. If you maintain enough stock to control the company, what type of agency conflict might occur?
- Suppose your company raises funds from outside lenders. What type of agency costs might occur? How might lenders mitigate the agency costs?
Required: Read the Chapter 13 Mini Case on pages 561-562 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a through d.
Using the mini case information, write a 250-500 word letter of intent discussing specific strategies for how you will conduct your start-up business with personal and professional integrity.
While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center.