Principles Managerial Solutions

Tips are similar to stock options in that they are offered as rewards for good service much as stock options are used to reward managers, presumably based on their good reference-?which subsequently leads to a higher stock price, The Donuts Shop, Inc. Example does not represent a clear case to agency costs because it is the management itself that has instituted the “No tips” policy and the employees have responded with reduced performance. Nanning tips, the management has created a situation where an agency cost may be necessary to provide an incentive for employees to resume their former level of performance.

One solution that may work for Donuts Shop, Inc is to institute a profit-sharing plan that reaches down to the employee level where the slowdown and inefficiency are occurring. A profit-sharing plan is designed to motivate the employees and could alleviate the aggravation caused by the no-tip policy, but must be clearly identified as the replacement to tipping in order to be effective.A profit sharing plan is usually viewed by the employees as a reward for good performance, but does not have the immediacy Of the positive effect that an employee gets from a tip. It is unclear from the case whether the new no-tip policy is a company-wide policy or simply the actions of a few branch managers. However, the real solution here is to recognize that the no.

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IP policy has created an unnecessary backlash that can be alleviated by reversing managements position without incurring the additional costs of revising the current employee benefit plan and paying out a portion of corporate profits, II-S.Stock Dividends vs.. Interest Answer: While 100% of corporate interest income is taxed at ordinary income tax rates, only of corporate dividend income is treated as taxable income Based solely on the tax treatment of corporate dividend income versus interest income, Pour, Inc.

Would hue greater after-tax income if it chooses the Restore stock eying 5% dividends over the promissory note paying 5% interest. T Solution to Problems LAG I: Liability Comparisons Basic (a) Ms. Harper has unlimited liability. (b) Ms.Installation of a time clock that must be punched by the receptionist every time she leaves work and returns would result in either: (1) her returning on time or (2) reducing he cost to the firm by reducing her pay for the 10th work, The Role and Environment of Managerial Finance 13 (b) The costs to the firm are in the form of opportunity Money budgeted to cover the inflated costs of this project proposal is not available to fund other projects which may help to increase shareholder wealth.Make the management reward system based on how close the managers estimates come to the actual cost rather than having them come in below Cost. (c) The manager may negotiate a deal with the merging competitor which is extremely beneficial to the executive and then sell the firm for less than its fair market value.

A good way to reduce the loss of shareholder wealth would be to open the firm up for purchase bids from Other firms once the manager makes it known that the firm is Willing to merge.If the price offered by the competitor is too low, other firms will up the price closer to its fair market value. (d) Generally part time or temporary workers are not as productive as full- time employees. These workers have not been on the job as long to increase their work efficiency, Also, the better employees generally need to be highly compensated for their skills. This manager is getting rid of the highest cost employees to increase profits. One approach to reducing the problem would be to give the manager performance shares it they meet certain stated goals.