Compared to Managers, Shareholders Prefer

question 73

Multiple Choice

Compared to managers, shareholders prefer:

• A) safer strategies with greater diversification for the firm.
• B) riskier strategies with more focused diversification for the firm.
• C) safer strategies with more focused diversification for the firm.
• D) riskier strategies with greater diversification for the firm.

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Definitions:

Conventional Cash Flows

A series of inward and outward cash flows over time where there is typically one initial outflow followed by several inflowing cash amounts.

Profitability Index

The Profitability Index is a financial metric that compares the present value of future cash flows generated by a project to the initial investment, used to assess the attractiveness of an investment.

Average Accounting Return

A method of measuring an investment's profitability by comparing its average net income to its average book value.

Return on Assets

A profitability ratio that measures how efficiently a company is using its assets to generate profit, calculated by dividing net income by total assets.