Which One of the Following Actions by a Financial Manager

question 16

Multiple Choice

Which one of the following actions by a financial manager is most apt to create an agency problem?

• A)refusing to borrow money when doing so will create losses for the firm
• B)refusing to lower selling prices if doing so will reduce the net profits
• C)refusing to expand the company if doing so will lower the value of the equity
• D)agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
• E)increasing current profits when doing so lowers the value of the firm's equity

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Definitions:

Insider Trading

The illegal activity of trading a public company's stock or other securities by individuals with access to non-public, material information about the company.

Material Nonpublic Information

Confidential, significant information about a company that has not been released to the public and could affect its stock price or investment decisions.

Financial System

The complex of institutions, including banks, markets, and regulators, that facilitate the flow of funds between savers and borrowers.

Open Market Operations

Central bank activities that involve the buying and selling of government securities in the market to influence liquidity and interest rates.