Question: Gill Bates is the CEO of a large company His
Gill Bates is the CEO of a large company. His compensation is based on current profitability. He is considering undertaking one of two investments available to the company: (a) one that yields profits of $500 million in each of the next 5 years and none thereafter and (b) one that yields annual profits of $300 million over 20 years. He selects the first investment. How could this example illustrate the agency problem?
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