Which of the Following Would Be Best Considered to Be

question 85

Multiple Choice

Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers?

• A) Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds.
• B) Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix.
• C) James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low.
• D) Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics.

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Definitions:

Cash Payback Period

The length of time it takes for an investment to generate enough cash flow to recover the initial investment cost.

Net Cash Flow

The difference between a company's cash inflows and outflows within a specified period, representing the overall change in its cash position.

Average Rate of Return

A financial ratio that compares the average annual profit of an investment to its initial cost, often used to assess the profitability of an investment over time.

Present Value Factors

Multipliers used to calculate the present value of a future amount of money or stream of cash flows given a specific discount rate.