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.

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Definitions:

Construct Validity

The extent to which a test or measure accurately assesses the theoretical concept it is intended to measure.

Measurement Errors

The difference between a measured value and the true or accepted value, arising from limitations in the measurement process.

Strong Situation

A situation that elicits similar behaviors from most people, minimizing individual differences in response.

Court Hearing

A session held before a judge or magistrate in which the legal issues or facts of a case are presented and determined.