To confirm you read these instructions, please initial M A 1. Principle agent pr

Question

To confirm you read these instructions, please initial M A 1. Principle agent problems are difficult to manage in firms. Which of these fact to this issue? Adverse compensation structures Difficulty in observing manager-agent actions Corporate executives acting like residual claimants PJ All of the above ^ A and B 2. A manager can focus on maximizing shareholder value alone only if several conditions are met, which is not a necessary condition? Known reconstructing costs Residual claimants are satisfied No asymmetric information Complete markets 3. Which is the most appropriate use of the coefficient of variation? A) Determining the risk of a single investment BJ Evaluating the volatility in an investment's cash flow Comparing expected values to actual values in a regression analysis Comparing risk relative to expected value . Projects with higher risk will exhibit which of the following characteristic; High risk free rate High risk premium Volatile cash flows Large variance Sources of positive net present value include, A) Brand loyalty B} Strong patents on integral processes Q Long track record of superior performance D) A and B AJ1 of the above

Explanation / Answer

1.

Correct Answer

D. All of the above

Explanation

Agency problems are aggravated and difficult to manage when certain factor either independent or in combination work together. These factors are adverse compensation structure that begins the agency problem. It leads to managers acting as residual claimant. Also, when observing and monitoring managers role become difficult.

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