Under the Practical Rule, a Manager Would Not Be Reluctant

question 47

Multiple Choice

Under the practical rule, a manager would not be reluctant to communicate a decision to people outside the company when

• A)the decision, although unethical, would increase shareholders' wealth.
• B)a typical person would consider the decision acceptable.
• C)a typical person wouldn't care about the decision.
• D)a typical person would be unaware of the harmful implications of the decision.
• E)he/she could blame the top management of the firm.

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Definitions:

Face Value

The nominal value printed on a bond or security which indicates its worth at maturity but does not necessarily reflect its market value.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its shareholders and debt holders, weighted according to the proportion of equity and debt in the company's capital structure.

Return on Equity

A financial ratio indicating the profitability of a company relative to its shareholders' equity, calculated as net income divided by shareholders' equity.

Weighted Average Cost of Capital (WACC)

A calculation of a firm's cost of capital in which each category of capital (debt, equity, etc.) is proportionately weighted, representing the average rate that a company is expected to pay for all its financing sources.