A Conflict Between an Owner and a Manager May Occur

question 69

Multiple Choice

A conflict between an owner and a manager may occur when

• A) the manager earns more when the firm has higher profits.
• B) the manager is seeking to maximize leisure time.
• C) the owner can easily observe the manager slacking off and reward him accordingly.
• D) the firm is very small and the manager must perform multiple tasks.

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Definitions:

Marginal Cost

Marginal cost refers to the increase or decrease in the total cost of producing one more unit of a good or service.

After-Tax Cost

The actual cost of an investment or loan after accounting for taxation, representing the net expense to the investor or borrower.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are expected to generate profit or value over time.

Retaining Earnings

Retained earnings refer to the portion of net income that is kept by a company rather than being paid out to its shareholders as dividends.