Financial Accounting

John is a fresh graduate from University. Recently, he got a job to work as clerical assistant in the Accounting Department of ABC Ltd. The company is specialized in manufacturing hi-tech measurement tools, which can be used to precisely measure technical parameters in various industries. Even though John’s major is in management in his degree, he is interested in the area of finance. It has come to his attention that the company's reported profits had been rising, but the stock price had declined nearly $3 per share over the past 9 months. John could not understand why the firm's stock price was falling as profits rose. John feels something wrong going on. On one hand, his common sense tells him that management should do what's best for all stakeholders. Moreover the firm has never paid dividends during its last year history to shareholders, the only way to benefit shareholders is for the stock price to rise. On the other hand, John had seen documents describing the firm's profit- sharing plan under which all managers were partially compensated on the basis of the firm's profits. He thought that maybe it was profit that was important to management, since it directly affected their pay. The fact that the firm is currently being sued by state and federal environmental officials for dumping pollutants in the adjacent stream, consolidates his thinking. The company simply does not want to spend money for pollution control as it increases costs, lowers profits, and therefore lowers management's earnings.

Given the information provided above, you are required to provide short answer the following questions:

a. List two differences between two primary goals of the management of ABC Ltd; Profit Maximisation and Wealth Maximisation? (5 Marks)

b. Does the firm appear to have an agency problem?(Yes/No)Explain (5 Marks)

c. Does the company policy on pollution control seem to be ethical? (Yes/No) (5Marks)

d. Why might incurring the...