Which One of the Following Actions by a Financial Manager

question 16

Multiple Choice

Which one of the following actions by a financial manager is most apt to create 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)refusing to expand the company if doing so will lower the value of the equity
• D)agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
• E)increasing current profits when doing so lowers the value of the firm's equity

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Definitions:

Continental Hot Spot

An area on a continent where hot plumes of mantle material rise, potentially causing volcanic activity and thermal features.

Rift Arms

Extensions of a rift valley, characterized by divergent plate boundaries where the Earth's crust is being pulled apart, leading to the formation of new crust.

Magma Bodies

Accumulations of molten rock located beneath the Earth's surface, which can potentially feed volcanic eruptions.

Continental Hot Spot

A region located within a continental landmass that exhibits volcanic activity due to a plume of hot material rising from beneath the Earth's crust.