When Company Ownership Is Diffuse

question 81

Multiple Choice

When company ownership is diffuse,

• A)a "free rider" problem discourages shareholder activism.
• B)the large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group, there's almost always someone who will to incur the costs of monitoring management.
• C)few shareholders have a strong enough incentive to incur the costs of monitoring management.
• D)both a and c are correct

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Definitions:

Annual Cost Savings

The reduction in costs achieved during a fiscal year, enhancing the organization's profitability.

Discount Rate

This rate is applied within discounted cash flow analysis to determine the contemporary monetary worth of future cash movements.

Investment Required

The total amount of capital needed to undertake a project, investment, or start a business.

Net Present Value

A method used in capital budgeting to determine the profitability of an investment or project, by calculating the difference between the present value of cash inflows and outflows over a period of time.