Question Details

The common factors that give rise to all principal-agent problems 



1.	Income tax payments are an example of ____.
a.	implicit costs
b.	explicit costs
c.	normal return on investment
d.	shareholder wealth
e.	none of the above




	2.	Various executive compensation plans have been employed to motivate managers to make decisions that maximize shareholder wealth. These include:
a.	cash bonuses based on length of service with the firm
b.	bonuses for resisting hostile takeovers
c.	requiring officers to own stock in the company
d.	large corporate staffs
e.	a, b, and c only



	3.	The common factors that give rise to all principal-agent problems include the
a.	unobservability of some manager-agent action
b.	presence of random disturbances in team production
c.	the greater number of agents relative to the number of principals
d.	a and b only
e.	none of the above


4.	The Saturn Corporation (once a division of GM) was permanently closed in 2009.  What went wrong with Saturn?
a.	Saturn- cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.
b.	Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
c.	Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.
d.	Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac.
e.	all of the above


5.  A Real Option Value is:
	a.	An option that been deflated by the cost of living index makes it a “real” option.
	b.	An opportunity cost of capital.
	c.	An opportunity to implement a new cost savings or revenue expansion activity that arises from business plans that the managers adopt.
	d.	An objective function and a decision rule that comes from it.
	e.	Both a and b.




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