The board of Infinity Ltd is considering business proposals from two major suppliers who are competing for
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Question:
The board of Infinity Ltd is considering business proposals from two major suppliers who are competing for work:
- Prime Merchants Ltd offers the first proposal that would create significant economies of scale and Infinity Ltd will save almost $2 million every year. Further, Prime Merchants Ltd offered each of the directors of the board an “all expenses weekend away”; as well as a gift of $50,000 each if the proposal is accepted by Infinity Ltd.
- Galaxy Ltd offers the second proposal, it would not only save Infinity Ltd $2 million every year but it would also result in a guaranteed increase in revenue of $1 million. Besides that, there are no other significant differences between the two proposals.
- i. In terms of agency theory, which proposal will the agent accept and why?
ii. Agency theory assumes that the agents are in a position of power since they have access to information and are in a position to make decisions. Justify how can the board of Infinity Ltd highlight this assumption.
Expert Answer:
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