Financial Management

"Financial Planning and Agency Conflicts" Please respond to the following:

•* From the scenario, cite your forecasting conclusions that support TFC’s decision to expand to the West Coast market. Speculate as to whether or not the agency conflict discussed in the scenario could become a roadblock to your conclusions. Provide a rationale for your response.

The analysis of financial statements is an important aid in making decisions that would impact the future of a company 1-5 years down the road. TFC was very thorough in their analysis to ensure they were taking the correct steps to avoid any agency conflicts.

Agency conflicts are issues that could potentially cause problems between, stockholders and creditors, controlling interest and non-controlling interest, and stockholders and management. TFC evaluated their policies and made changes they felt appropriate to mitigate agency conflicts and risk.

Conflicts between stockholders and creditors

TFC’s expansion project could potentially raise concerns with creditors and stockholders because in order to expand they would have to take on more debt. In order to allay concerns about risk, TFC has adopted a policy of full disclosure and outlined in great detail what the debt would be used for.

Conflicts between owner/managers and outside owners

This conflict would arise when the owner also runs the company. Increased wealth, would increase the value of the company, but could also lead to perks at the expense of the company such as vacations, corporate jets, or expense accounts.

When TFC became a public company, this “perk” was eliminated altogether.

Conflicts between stockholders and managers

Shareholders want companies such as TFC to hire managers who are willing to and able to take legal and ethical action in regards to maximizing intrinsic value of stock. To avoid issues such as, personal benefit regarding corporate resources, not properly evaluating risk, or stockpiling extra cash in securities or bonds,...