You have decided to form a new start-up company developing applications for the iPhone. Match each example listed below with the type of decision you would make as a financial manager.

You are the CEO of a company and you are considering entering into an agreement to have your company buy another company. You think the price might be too high, but you will be the CEO of the combined, much larger company. You know that when the company gets bigger, your pay and prestige will increase. What is the nature of the agency conflict here and how is it related to ethical considerations?

(Select all the choices that apply.)

A.

There is an ethical dilemma when the CEO of a firm has incentives that are opposite to those of the shareholders.

B.

There is a legal issue when the CEO of a firm has incentives that are opposite to those of the shareholders.

C.

In this case, you (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because the value of the combined company will improve.

D.

In this case, you (as the CEO) have an incentive to potentially overpay for another company (which would be damaging to your shareholders) because your pay and prestige will improve.