(a) Explain the type I and type II agency problem. (5 marks) (b) Assume that Starbucks...

 

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(a) Explain the type I and type II agency problem. (5 marks) (b) Assume that Starbucks is planning to buy new coffee machine. They can buy Dolce coffee machine which will cost £5000. The firm can use it for 3 years and each year it will incur maintenance cost of £500. Jacobs Dowe coffee machines will cost £6000 and can be used for 4 years. The maintenance cost of this machine is £400 per year. Which machine the company will buy, if required rate of return is 7% p.a.? (8 marks) (c) Explain transaction and economic exposure. How the firm can reduce transaction and economic exposure? Explain. (a) Explain the type I and type II agency problem. (5 marks) (b) Assume that Starbucks is planning to buy new coffee machine. They can buy Dolce coffee machine which will cost £5000. The firm can use it for 3 years and each year it will incur maintenance cost of £500. Jacobs Dowe coffee machines will cost £6000 and can be used for 4 years. The maintenance cost of this machine is £400 per year. Which machine the company will buy, if required rate of return is 7% p.a.? (8 marks) (c) Explain transaction and economic exposure. How the firm can reduce transaction and economic exposure? Explain.

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Ans a TYPE 1 AGENCY PROBLEM The agency problem of type 1 refers to the shareholder and management co... View the full answer