Under Which Conditions Are Shareholders Most Likely to Be Concerned

question 16

Multiple Choice

Under which conditions are shareholders most likely to be concerned about agency conflicts?

• A) Growth firm with financing needs that use most of the firm's available cash flows
• B) Young firm with negative free cash flows
• C) Large free cash flows generated by a mature firm
• D) Mature firm with a low retention ratio and frequent stock repurchases

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Definitions:

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Chief Executive Officer

The highest-ranking executive in a company, responsible for making major corporate decisions and managing overall operations.

Net Operating Income

A financial metric that calculates a company's profitability by subtracting operating expenses from its total revenue, excluding taxes and interest.