Which of the Following Statements Is Correct

question 46

Multiple Choice

Which of the following statements is correct?

• A) Given the multi-owner nature of most large companies, agency costs associated with perquisite consumption are not really a problem.
• B) Managers may operate in the shareholders' best interests, but they may also operate in their own personal best interests.As long as managers stay within the law, there simply are not any effective controls that shareholders can implement to control managerial decision making.
• C) Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries.
• D) An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person.
• E) All of the above statements are false.

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Definitions:

Sales Volume

The quantity of products or services sold by a company in a specific period.

Net Operating Income

A financial metric that calculates a company's profit after subtracting operating expenses, excluding taxes and interest.

Degree Of Operating Leverage

A measure, at a given level of sales, of how a percentage change in sales volume will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.

Variable Costs

Costs that change in proportion to the level of activity or volume of output produced.