Which One of the Following Actions Is the Best Example

question 200

Multiple Choice

Which one of the following actions is the best example of an agency problem?

• A) Paying management bonuses based on the number of store locations opened during the year.
• B) Paying management bonuses based on the current market value of the firm's stock.
• C) Accepting a project that enhances both management salaries and the market value of the firm's stock.
• D) Requiring stockholders approval of all management compensation decisions.
• E) Basing management bonuses on the attainment of specific financial goals.

---

Definitions:

Fixed Cost

Costs that remain constant regardless of production or sales volumes, including expenditures like rent, salaries, and insurance.

Variations in Volume

Changes in the amount of output produced or sold, affecting costs and revenue.

Relevant Range

The range of operational activity within which the assumptions about fixed and variable cost behaviors hold true for a specific business.

Curvilinear Cost

A cost structure where costs increase at a non-constant rate as volume increases, depicting a curve on a graph.