Which One of the Following Actions by a Financial Manager

question 7

Multiple Choice

Which one of the following actions by a financial manager creates an agency problem?

• A) Refusing to borrow money when doing so will create losses for the firm
• B) Refusing to lower selling prices if doing so will reduce the net profits
• C) Agreeing to expand the company at the expense of stockholders' value
• D) Agreeing to pay bonuses based on the book value of the company stock
• E) Increasing current costs in order to increase the market value of the stockholders' equity

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Definitions:

Personal Freedom

The rights of individuals to make choices regarding their personal life, actions, and beliefs without undue interference or restriction from others or the government.

Government Interference

Government interference refers to actions by a governmental body that affect individual, business, or societal activities, sometimes perceived as undue or excessive regulation or intervention.

Establishment Clause

A clause in the First Amendment of the U.S. Constitution that prohibits the government from establishing an official religion, ensuring the separation of church and state.

Public Schools

Educational institutions that are funded and operated by government agencies to offer free education to students through taxes collected from the public.