Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 03 Mar 2018 My Price 5.00

Agency Costs Tom Scott

Agency Costs Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company’s profits are driven by the amount of work Tom does. If he works 40 hours each week, the company’s EBIT will be $525,000 per year, and if he works a 50-hour week, the company’s EBIT will be $650,000 per year. The company is currently worth $2.9 million. The company needs a cash infusion of $1.3 million, and it can issue equity or issue debt with an interest rate of 8 percent. Assume there are no corporate taxes.

a. What are the cash flows to Tom under each scenario? b. Under which form of financing is Tom likely to work harder?

c. What specific new costs will occur with each form of financing?

 

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Maurice Tutor
(5)
Status NEW Posted 03 Mar 2018 09:03 PM My Price 5.00

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