If Good Salespeople Are Extremely Risk Averse,then a Choice Between

question 103

Multiple Choice

If good salespeople are extremely risk averse,then a choice between a fixed-fee contract and a contingent contract

• A) avoids a moral hazard.
• B) will result in all job candidates choosing the contingent contract.
• C) will result in an efficient contract.
• D) may not be a good screening device.

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Definitions:

Residual Income

The income that remains after subtracting all required costs of capital from operating income, a measure of profitability.

Minimum Required Rate

The lowest rate of return that an investment must yield to be considered acceptable, often tied to the cost of capital or inflation.

Investment Opportunity

A financial investment or asset that has the potential to yield returns or profits.

Residual Income

The income that remains after deducting all required costs of capital from the operating income, used as a performance measure.