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23) In order to reduce agency problems, managers may be provided compensation that includes: A) A fixed salary so managers' pay is not at risk,
23) In order to reduce agency problems, managers may be provided compensation that includes: A) A fixed salary so managers' pay is not at risk, allowing managers to focus on the company's business. B) A bonus based on the level of profit achieved during the year. C) An option to buy the company's stock. D) Incentive pay for achieving higher sales than last year. Answer: 24) An investor is considering two equally risky investments. Investment A is expected to return $1,000 per year for the next 5 years. Investment B is expected to return $6,000 at the end of 5 years. Which of the following statements is most correct if both investments A and B have the same cost? A) A risk averse investor will select investment B because it is expected to provide the most cash ($6,000 > $5,000). B) A risk averse investor will select investment A because it provides cash earlier than investment B. C) The investor will select investment A only if the cost is less than $1,000. D) The investor may select investment A or investment B depending on the opportunity cost of money
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