Monitoring a Manager Can Be Difficult If

question 44

Multiple Choice

Monitoring a manager can be difficult if

• A)the owner and manager do not have an enforceable contract.
• B)the owner cannot easily observe the manager's actions.
• C)the manager doesn't have to use a time clock.
• D)the board does not have enough outside directors.

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Definitions:

After-Tax Cost of Debt

The net cost of debt to a company after accounting for the tax deductions on interest payments, effectively lowering the interest expense.

Bond Prices

The market value of a bond, which can fluctuate based on interest rates, credit quality of the issuer, and other factors.

Security Market Line

A representation in the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of a security and its risk, measured by beta.

Marginal Tax Rate

The rate at which the next dollar of taxable income would be taxed, reflecting the percentage taken by taxes in the next higher tax bracket.