Posted: April 24th, 2016
5. Which of the following situations best characterizes the agency costs associated with diverse ownership?
a. managers have incentives to substitute low risk projects for high risk projects
b. managers have incentives to reduce the dividend payout ratio in order to accelerate debt repayment
c. Managers that own shares of the firm they manage have incentives to consume perquisites
d. all of the above
e. none of the above
6. which of the following statements is false?
Answer a. Income statement is useless because balance sheet indirectly provides net earnings.
b. The certainty means that everyone knows everything including future cash flows
c.Under the certainty condition, all asset values on balance sheet are economic values.
d.Capital maintenance concept cannot be applied under the certainty condition
7. which one shows the agency cost based on agency theory?
a. lower earnings figure from current period
b. manager’s avoidance to invest on R&D
c. decrease in stock price at the end of year
d.audit failure by external auditors
8. which of the following statements is less likely to affect earnings quality?
a.accounting policy choice
b. conservative accounting
c. creditor’s decision model
d. earnings management
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