Where Management's Bonuses Are Tied to Profit-Based Performance Measures Management

question 25

Multiple Choice

Where management's bonuses are tied to profit-based performance measures management may have an incentive not to revalue assets because:

• A) When revaluing assets, the value of the asset base increases, consequently the return on assets will fall.
• B) A revaluation may result in a decrease in the value of the asset base.
• C) A revaluation that increases the value of the asset base will increase profit measures.
• D) When revaluing assets, the value of the asset base increases, consequently the debt to equity ratio will fall.
• E) None of the given answers.

Understand the concepts and applications of credit instruments in financial management.

Comprehend the importance and methods of managing receivables and the implications for cash flow.

Grasp the economic and operational considerations in extending credit to customers.

Recognize the characteristics of creditworthy customers through the five Cs of credit.

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Definitions:

Business Judgment Rule

A principle that protects corporate directors and officers from liability for decisions made in good faith and in the belief that they were acting in the best interest of the company.

Derivative Suit

A lawsuit brought by shareholders on behalf of a corporation against third parties or insiders like directors, alleging harm to the company.

Corporate Treasury

The division within a corporation that manages the company's finances, including cash flow, investments, and risk.

Cumulative Voting

A voting system commonly used in corporate elections that allows shareholders to concentrate their votes on a single candidate, as opposed to distributing them among multiple candidates.