Part 1: Stockholders and Management Interests
Stockholders and managers want the same thing, don’t they? Theoretically, yes, but in reality, it does not always work that way. Too often, managers’ personal goals compete with shareholder wealth maximization. Sometimes, managers pay themselves excessive salaries or bonuses that are at odds with the idea of shareholder wealth maximization. How many times have you seen in the news examples of CEO excesses or outlandish spending on events or things that definitely do not help the overall goal of stockholder wealth maximization?
To prepare for this Discussion, think about a time in your professional experience when a decision was made that seemed to benefit a specific manager or small group of managers and not the overall corporation. If you do not have professional experience directly related to this topic, research a situation in the news where this theme is demonstrated. Consider the outcomes of such an imbalance between manager and stockholder interests, and research on how to avoid such a situation.
Describe the situation from either your professional experience or your research.
Explain two or more motivational tools that can aid in aligning stockholder and management interests.
Explain how your selected tools are effective in resolving potential conflicts among managers and stockholders.
Support your discussion with appropriate academically reviewed articles. Use APA format throughout.
Part 2: Application of Concepts/Time Value of Money
Review the video links below. Based on the materials presented in these videos, discuss how you will use the time value of money concepts in managerial decision making. Be specific and give examples based on your experience or research.
Time Value of Money :
https://www.youtube.com/watch?v=m3azU7gYHc0&feature=emb_logo
Bonds:
http://www.teachmefinance.com/bondvaluation.html
STUDENT RESPONSES :
. Read and respond to your classmates. Respond to at least 3 of your classmates posts. In your response to your classmates, consider comparing cash generation techniques at your company versus his or her company. Draw distinctions based on the industry and tell your colleagues why those distinctions are necessary for the management of cash flow. Below are additional suggestions on how to respond to your classmates discussions:
· Ask a probing question, substantiated with additional background information, evidence or research.
· Share an insight from having read your colleagues postings, synthesizing the information to provide new perspectives.
· Offer and support an alternative perspective using readings from the classroom or from your own research.
· Validate an idea with your own experience and additional research.
· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.
· Expand on your colleagues postings by providing additional insights or contrasting perspectives based on readings and evidence.
1ST STUDENT (Divyang) :
Here is a part of the gutters precedents, who gain huge severence of bundles independent of reality, or compasses perform great or not
Lee Raymond at Exxon Mobil: $ 321 million
Lee Raymond, the dubious former CEO of Exxon Mobil, who used his official seat as a podium to take his distrust into a dangerous atmosphere, earned $ 321 million when he became CEO in 2005. Then he turned away, Charles M. Elson, head of the John L. Weinberg Management and Management Center at Delaware University, exclaimed that “Exxon was there before Raymond was there, and there will be long after he appears, but Rockefeller to return, to the limb. ”
Bob Nardelli at Home Depot: $223 Million
By the time Bob Nardelli was appointed CEO of Home Depot in 2007, he earned $ 223 million. As reported by GMI, “Investors were extremely sophisticated for Nardelli’s earnings, which reached $ 131 million in all payouts in 2006, regardless of the dormant cost of shares.” He cleared the organization after the Board of Directors asked him to more closely link his compensation to the investor’s profit. “As part of the agreement, Mr. Nardelli has earned $ 100 million in benefits and severance payments. (Bruno, S.)
The two basic motivational tools that everyone uses to force others to take the necessary steps from age are reward and fear. Here are the two
1.Managerial compensation
2. Threat of firing
1. managerial compensation:
Administrative rewards should not only evolve to have administrators but have yet to adjust the interests of bosses to the interests of investors, which can reasonably be expected.
This is usually ended with an annual wage as a performance fee and shares with friends.
The organization’s shares are usually allocated to the administrator either:
Execution actions in which executives get a specific number offer in the light of the organization’s performance. (Joseph, L.)
Official investment opportunities that enable the director to buy shares in the future and costs. With the use of investment opportunities, administrators will adapt to investors’ enthusiasm as they will be the investors themselves.
2. Threat of firing:
The chance that investors are desperate with current governance can support the current headquarters in changing the current administration, or investors can re-select other senior management personnel to do the job.
So, I believe that these devices can be powerful in solving potential conflicts between Chiefs and Investors whenever they are used convincingly.
Part 2:
The time estimate of money is the central idea of a reserve that announces that money currently open is now a comparable whole later. This is based on a potential security limit. The rule fights money that can get insurance and supplements after a certain period of time, so it has a more substantial value today. In addition, it is more financially important to have a certain amount of money and pass it quickly because the swelling may, after a certain period of time, reduce the gaining power of a comparable aggregate. Time considerations apply to all areas of a cash-generating organization and can be used to select capital formation, stock and securities valuation strategies, vehicle budgeting, leasing and capital costs.
Future Value:
Future value is used to find how much a wage will be worth later on by considering credit expenses or capital increments over different periods. The future estimation of an endeavor is discovered by copying the key entirety and the credit cost, by then adding the recouped energy to the essential aggregate.
References:
Joseph, L. Managing for the long term. Retrieved from< https://hbr.org/2017/05/managing-for-the-long-term>
Bruno, S. Managers should be paid like Bureaucrats. Retrieved from
Rick, N. Time value of money. Retrieved from< http://www.zenwealth.com/businessfinanceonline/TVM/TimeValueOfMoney.html>
2nd student (Bharani ) :
Part 1
The situation out research or professional experience
Organizations nowadays make decisions to benefit overall corporation and managers too. Sometimes, companies criticize decisions they make. The reason behind this is because of the decisions might end up benefiting managers only and not the company at large. In todays businesses, the main goal is wealth maximization and we all know that wealth is a long-run concept (El Bouhadi, Mansouri & Benali, 2009). Business will only compete with its competitors in an effective way after attainment of wealth maximization. Stockholder wealthy is essential because it helps companies generate earnings which meet individual needs as while (Truong & Heaney, 2013).
Motivational tools
The following motivations strategies are major ones to be used;
Intervention by shareholders directly
With this tool, stockholders intervene with their leaders directly and they are able to talk freely about their views on how to run businesses in a way which is productive.
Compensation packages
This tool helps to tackle interest of the leaders. When the tool is in an adequate manner, managers who are experts and able will work towards success. Preparation of the compensation package helps to reward on the long-term fulfillment of obligations (Truong & Heaney, 2013).
The effectiveness of the above tools
The above tools selected are important in their own ways. In company. Conflict must arise because people do think differently. The tool helps to handle the conflicts when they arise among the managers and the stockholders. Like compensation, the tool offers chances for compensating managers for the best performance. Consequently, stockholders in any given company will end up getting returns on what they have invested on.
Direct intervention tool also offers its own benefits. Using this tools, management and stockholders make critical decisions which offer benefits to the company. The benefits created through the decisions befits not the decision makers but the whole company. Therefore, conflicts will be managed through the relevant decision made (El Bouhadi, Mansouri & Benali, 2009).
Part 2
Time value money is an essential term in financial management. Its applied to make the comparison of investments alternatives and to handle problems relating to mortgages, loans, annuities, and savings. The TVM explains that dollar in hand today is more worthy than expected or promised dollar to come in future.
Calculation of future value
Let’s assume someone invested $ 1,000 for 3 years in an account (savings account) paying 10% interest per annual (Carline & Yadav, 2009). If interest income is reinvested, the investment created will be as discussed below;
Investments at the beginning
$1,000
Interest($2,100*0.10)
$110
End principal
$1,210
Reinvesting and investing money process is known as compounding. Let’s use XY=PV (1+r) n
R=interest
(1+r) n=factor value for future
XY=PV (1+r) n=compound value or future value
Interest rate and the n value is are specified using pre-defined tables. n used here is the number of the year. Also, the calculator can be used or by using excel sheet (Carline & Yadav, 2009).
In our case, XY=1,000 can be used as follows
XY=1,000 *1.210 will give us $1210
Doubling time
In TVM, the concept which is essential is doubling time. Those investing should be careful to know when what they invested on is likely to double at certain interest. The known 72 rule should be applied. This implies that the doubling period is extracted diving the 72 with the rate of interest (Carline, Linn & Yadav, 2010).
For example, if the interest rate is 9%, the period of doubling is 8 years which is obtained by dividing {72/9} which will give us the 8 years.
Other concepts which should be taken into consideration include;
Single amount present value
The concept states present money value anticipated to be attained after some period of time.
Annuity future value
This is a stream of cash flows that is payments and receipts which takes place at certain intervals of time.
Annuity present value
The concept covers any present value at given time.
Recent Comments