Page 89 - 5.2 i. Manac Finance ITC Summarised Notes
P. 89
CAPITAL INVESTMENT APPRAISAL
Conflict of interest issues (managers vs
shareholders)
• When considering a capital investment, managers may
experience a conflict of interest between acting in their
own best interest and acting in the interest of the
shareholders (which is their responsibility).
• The transaction may not necessarily maximise shareholder
wealth but the management will pursue the opportunity in
order to benefit themselves.
• It should be noted that such unethical motivation for a
capital investment is one of the key reasons for failed
transactions.
• For this reason amongst others the pre- and post-acquisition
reviews are important procedures for consideration.
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