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Conflict of Interest with bank, shareholders, managers

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Henry's Balance Sheet

Cash C Henry's Equity HE
Raw Material R Liabilities + Stockholder's Equity TA
Tools T
Garage G
Total Assets TA

Revised Balance Sheet

Henry's Balance Sheet
Cash C Bank Loan B
Raw Material R Henry's Equity HE
Tools T Liabilities + Stockholder's Equity TA
Garage G
Total Assets TA

Consider the fictionalized account of Henry's car firm
a) Describe some of the conflicts of interest between Henry and the bank
b) Describe some of the conflicts of interest between Henry and the other shareholders
c) Describe some of the conflicts of interest between the managers and Henry

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ANSWERS

a) Describe some of the conflicts of interest between Henry and the bank

Some of the conflicts of interest between Henry and the bank result from the fact that creditors such as the bank are paid first, for interest, before Henry does. One of the conflicts is that Henry can direct the car firm to ...

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The solution examines the conflict of interest with bank, shareholders and managers.

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