1. Which of the following could motivate a manager to pursue short-term performance over long-term performance?

Multiple Choice

• Threats of punishment for failure to meet current period earnings goals.

• Bonus systems that reward the accomplishment of current period goals.

• Both threats and bonus systems can motivate an inappropriate focus on short-term performance.

2. Managers may act in their self-interest even if this action is detrimental to the interest of the company that employs them. This statement is true or false

3.The conflict between short-term versus long-term performance can be minimized by implementing an appropriate performance evaluation system. This statement is true or false

4. The Land Development Corporation (LDC) has an opportunity to purchase one of two rental properties. Both properties cost the same amount. Property A is located in a growth community where demand is increasing. The company believes it will be able to raise its rental rates over the next three years. Specifically, LDC expects an income stream of $150,000 in year one, $200,000 in year two and $250,000 in year three. Property B is located in a stable area and is expected to produce an income stream of $190,000 per year for the next three years. Under these circumstances

Multiple Choice

• suboptimization is likely to occur if management is put under pressure to produce short-term results.

• suboptimization is not possible because the total income from Property A is more than the total income from Property B.

• suboptimization is likely to occur if management is encouraged to focus on long-term goals.

• none of the answers is correct.

5. Kelly Catering Company was recently faced with a make or buy decision for cakes the company sells to its customers. Kelly was quoted a purchase price that was significantly below its avoidable cost to make the cakes. However, there was strong evidence that the potential supplier was low-balling the price. Even so, Kelly's management team decided to outsource the cakes. Which of the following is the most likely explanation for this decision?

Multiple Choice

• Purchasing the cakes is likely to improve the company's long-term profitability.

• The practice of low-balling is illegal.

• Employees were offered bonus based on current period performance.

• The Company had excess capacity.