One Argument Against Using a Profit-Sharing Scheme Is the Potential

question 7

Multiple Choice

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

• A)one firm using the same contract specifications as another firm.
• B)a worker not providing effort because his contribution to profit is very small.
• C)a worker not providing effort because he doesn't want his co-workers' wages to increase.
• D)the firm not honestly reporting its profits.
• E)profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme.

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Definitions:

Effective-interest Method

A method of amortizing bond discounts or premiums that reflects the constant rate of interest over the life of the bond with respect to its carrying value at the beginning of each interest period.

Interest Expense

Represents the cost incurred by an entity for borrowed funds, reflecting the interest payments on debt obligations during a reporting period.

Present Value Factors

These are factors used in financial formulas to determine the present value of future cash flows or income.

Market Rate

The prevailing interest rate available in the financial markets for a similar instrument or the going rate for goods or services in a certain market.