How Can Conflicts Arise Between the Decision Model and the Performance

question 181

Essay

How can conflicts arise between the decision model and the performance evaluation model used to evaluate managers? Provide an example of this type of conflict.

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Definitions:

IRR

An economic indicator, the Internal Rate of Return is utilized to assess the possible profitability of investment opportunities.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project, calculated by summing the present values of incoming and outgoing cash flows.

Preferred Stock

A security that pays a constant dividend forever. A hybrid between debt and common equity.

Hybrid Security

A financial instrument that combines characteristics of both equity and debt, often providing fixed income or dividends as well as the potential for capital appreciation.