The Board of Directors of Beeline, Inc

question 190

Multiple Choice

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.

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Definitions:

Interest-Rate Cost

The cost incurred by an individual or entity due to the interest rate applied on borrowed funds, influencing how much is paid back in interest over the loan period.

One-Time Added Profit

A temporary increase in earnings that a company experiences from a singular event or transaction, not expected to recur in the normal course of business.

Anticipates

The action of foreseeing or preparing for future events or needs.

Marginal Cost

The cost incurred by producing one additional unit of a product or service, crucial for decision-making in production and pricing strategies.