To reduce Agency Problems, executive compensation should be designed to:

Question 1

Income tax payments are an example of ____.

Answer

implicit costs

explicit costs

normal return on investment

shareholder wealth

Question 2

The primary objective of a for-profit firm is to ___________.

Answer

maximize agency costs

minimize average cost

maximize total revenue

set output where total revenue equals total cost

maximize shareholder value

Question 3

To reduce Agency Problems, executive compensation should be designed to:

Answer

create incentives so that managers act like owners of the firm.

avoid making the executives own shares in the company.

be an increasing function of the firm’s expenses.

be an increasing function of the sales revenue received by the firm.

Question 4

Possible goals of Not-For-Profit (NFP) enterprises include all of the following EXCEPT:

Answer

maximize total costs

maximize output, subject to a breakeven constraint

maximize the happiness of the administrators of the NFP enterprise

maximize the utility of the contributors

Question 5

Economic profit is defined as the difference between revenue and ____.

Answer

explicit cost

total economic cost

implicit cost

shareholder wealth

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