A Major Conflict of Interest Between Top Executives and Owners

question 115

Multiple Choice

A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to ____, whereas owners wish to diversify the firm to ____.

• A) generate free cash flows; reduce the risk of total firm failure
• B) increase the price of the firm's stock; increase the dividends paid out from free cash flows
• C) reduce the risk of total firm failure; reduce their total portfolio risk
• D) reduce their employment risk; increase the company's value

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Definitions:

Demand Shifts

Changes in the demand curve due to factors other than the price of the good, such as changes in income, tastes, or prices of related goods.

Quantity Demanded

The total amount of a good that consumers are willing and able to purchase at a specific price in a given period.

Economy Moves

The dynamic changes and shifts in economic activity, including growth, recession, and recovery phases, within a country or globally.

Supply

Refers to the total amount of a specific good or service that is available to consumers.