fundamentals of corporate finance 11th canadian edition By Stephen A. Ross Test bank
B) Most firms are corporations.
C) The stockholders are usually the managers of a corporation.
D) The ability of a corporation to raise capital is quite limited.
E) The income of a corporation is taxed as personal income of the stockholders
194) Which of the following does not assist in ensuring managers act in the best interest of owners?
A) A compensation package for managers that ties their salary to the firm's share price.
B) Managers are promoted only if the firm prospers.
C) The threat that if the firm does poorly, shareholders will use a proxy fight to replace the existing management.
D) There is a high degree of likelihood the firm will become a takeover candidate if the firm performs poorly.
E) A compensation package for managers that is all cash with no ties to performance.
195) What strategies do hedge funds employ to earn their returns?
A) Their strategies may include arbitrage, high levels of leverage, and active involvement in the derivatives market.
B) Their strategies may include indexing the returns of major stock exchanges in North America.
C) Their strategies may include indexing the returns of stock and bond markets in North America.
D) Their strategies may include indexing the returns of North American mutual funds.
E) Their strategies include indexing the returns of risk-free returns such as North American government bonds.
196) Financial managers should strive to maximize the current value per share of the existing stock because:
A) Doing so guarantees the company will grow at the maximum possible rate.
B) Doing so increases the salaries of all the employees.
C) They have been hired for the purpose of representing the interest of the current shareholders.
D) Doing so means the firm is growing faster than its competitors.
E) The managers often receive shares of stock as part of their compensation.
197) The Board of Directors of Beeline, Inc. has decided to base the salary of its financial manager entirely upon the market share of the firm. Accordingly,
A) The firm may incur some agency costs since the manager will be focused on the market share of the firm rather than acting to maximize earnings.
B) The financial manager will always act in the best interest of the shareholders since all agency costs have been eliminated through salary incentives.
C) This arrangement may be unnecessary, since the goal of the firm is to maximize earnings for shareholders, and that is most likely accomplished through larger market share.
D) The manager may not act to maximize the current value of the firm's stock, resulting in agency costs for the firm's stockholders.
E) The firm will incur some agency costs if the manager acts to maximize market share.
198) Which of the following does not persuade managers to work in the best interest of the stockholders?