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Your friend Dave wants to open an ice cream stand. He knows the business, and you know him to be honest and generally hard working. He needs $50,000 but has only $3,000 or his own to invest. You are thinking of forming a syndicate of stockholders; each of the 20 of you would put up $2,350 to make up the other $47,000, and Dave would get a 10% share of the profits (as well as a reasonable salary for Dave).

(a) What agency (moral hazard) problems do you see in this arrangement?

(b) What steps could Dave and the syndicate take to minimize those problems?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92309666

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