One of the Potential Negative Side Effects of Pay in the Form

question 270

Multiple Choice

One of the potential negative side effects of pay in the form of sales commissions is

• A) a greater incentive for salespeople to engage in unethical or fraudulent sales practices that may eventually cause legal problems for the firm.
• B) increased volatility of sales revenue for the firm.
• C) the potential that pay levels may get so high that they will increase a firm's marginal wage cost more than its marginal revenue product.
• D) an increased likelihood of shirking by workers.

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Definitions:

Cost of Capital

The minimum profit rate a company needs to achieve on its investment ventures to keep its market value stable and draw in capital.

Cash Inflows

Money received by a business from various sources including sales, investments, and financing.

Useful Life

The estimated period over which an asset is expected to be used by the entity, or be productive.

Salvage Value

The projected sell-on value of an asset upon reaching the end of its operational lifespan.