The actions that stockholders can take to ensure that the management and stockholder’s interests are aligned. Introduction: Stockholders: Stockholders are the owner of the company who invest funds in the business. Stockholders have the voting right and control over the management. The relationship between the stockholder and manager is like the relationship of principal and agent Managers : Managers are the agent of the stockholders who perform for the stockholders. The mangers should not do any such action which is detrimental to the interest of the stockholders. There can be a situation where conflicts may arise between manager’s personal interest and stockholders interest, in such situation the priority should be given to the stockholders interest.

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Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $75,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $7,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $50,000. The firm's tax rate is 25%, and the…

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Chapter 1, Problem 8Q

Summary Introduction

To identify: The actions that stockholders can take to ensure that the management and stockholder’s interests are aligned.

Introduction:

Stockholders: Stockholders are the owner of the company who invest funds in the business. Stockholders have the voting right and control over the management. The relationship between the stockholder and manager is like the relationship of principal and agent

Managers: Managers are the agent of the stockholders who perform for the stockholders. The mangers should not do any such action which is detrimental to the interest of the stockholders. There can be a situation where conflicts may arise between manager’s personal interest and stockholders interest, in such situation the priority should be given to the stockholders interest.

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