Positive Accounting Theory Suggests That the Separation of Ownership and Control

question 8

Multiple Choice

Positive accounting theory suggests that the separation of ownership and control within an entity means managers, as agents, are likely to act:

• A) in their own interests.
• B) in the interests of the debtholders.
• C) in the interests of the shareholders.
• D) in the interests of the directors.

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Definitions:

Net Present Value

A calculation used to assess the profitability of an investment, measuring the difference between the present value of cash inflows and the present value of cash outflows over time.

Opportunity Cost of Capital

The potential return lost by investing capital in one project instead of another with a higher return.

Expected NPV

The anticipated net present value, which estimates the present value of future cash flows minus initial investments, accounting for risk and uncertainty.

Project

A scheduled collection of connected activities designed to be completed within a specific timeframe and under predetermined budget and restrictions.