The relationship between book value and market value cannot be predicted; hence,

Question

The relationship between book value and market value cannot be predicted; hence, it would be possible for Apple stock to have book value of $44 billion on the firm's books, but have a much larger market value of $242 billion.

False

The Agency Theory proposed __________ as a solution for the potential problem of senior managers acting in their own self- interests, not in the interests of owners.

compensation in the form of stock or stock options

Financial managers tend to care more about the market value of an asset, rather than the accounting book value. This means that financial managers tend to care more about the market value of a stock than its book value.

Explanation / Answer

1. The relationship between book value and market value cannot be predicted; hence, it would be possible for Apple stock to have book value of $44 billion on the firm's books, but have a much larger market value of $242 billion.

The statement is true.

The book value of company is difference between its total assets and total liabilities.

While the market value of a company is equal to the current stock price * number of outstanding shares

Therefore the relationship between book value and market value cannot be predicted.

2. The Agency Theory proposed compensation in the form of stock or stock options as a solution for the potential problem of senior managers acting in their own self- interests, not in the interests of owners.

if senior managers will get compensation in the form of stock or stock options, they will associated closer to the interest of the stockholders as they also will be stockholders.

Therefore correct answer is option: compensation in the form of stock or stock options

3. Financial managers tend to care more about the market value of an asset, rather than the accounting book value. This means that financial managers tend to care more about the market value of a stock than its book value.

This statement is true.

The goal of the firm's financial managers is to maximize of the total value of the firms stock therefore financial managers tend to care more about the market value of a stock than its book value.

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