The Board of Directors of CamCell, Inc

question 86

Multiple Choice

The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance.The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns.Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future.CamCell is presently searching for a new CEO.Which of the following statements is true?

• A) This plan will be very attractive in luring candidates for the CEO position.
• B) CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan.
• C) Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell.
• D) This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.

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Definitions:

Subscriptions Receivable-Common Stock

An account reflecting the amounts due from subscribers who have committed to purchase common stock, not yet paid for.

Source of Capital

Source of capital refers to the avenues through which a business or an individual raises funds to finance projects, operations, or investments, including equity, debt, and internal funds.

Paid-In Capital

The quantity of funds a corporation has obtained from its investors as compensation for shares of the company's stock.

Paid in Capital in Excess

Funds received from shareholders over and above the par value of the stock issued, also known as additional paid-in capital.