Exam 12: Agency Problems Compensation and Performance Measurement

An advantage of stock-based performance compensation for managers is that such managers must bear macroeconomic risks.

Which of the following actions-all else equal-will decrease a firm's EVA?

Generally, firms with high levels of intangible assets tend to report (-all else equal-)

One calculates EVA as follows:

The economic rate of return on an asset is defined as

The following are agency problems associated with capital budgeting except

Briefly explain the term qualified opinion issued by the auditors.

Define the term economic rate of return.

Briefly explain how a plant manager can improve EVA (economic value added)?

In the United States, tax advantages exist for compensating good performance by large-firm CEOs with stock option grants rather than by simply increasing salaries.

In the principal-agent framework, the ultimate principals are

Since monitoring is not perfect, compensation plans should primarily provide managers incentives to

According to the survey of senior managers by Graham, Harvey, and Rajgopal, senior managers admitted to the following:

Agency problems in capital budgeting include reduced effort, perks, empire building, and entrenching investments.

When firms award stock options to managers as incentives, they typically set the exercise price of these options equal to the firm's

Stock option grants are generally a more appropriate form of compensation for lower-level managers than for higher-level managers.

In large public companies, monitoring is the primary responsibility of the

Accounting income takes no account of the cost of the capital employed by a firm.

An example of an entrenching investment is a manager that expands the scope of his or her operation.

CEOs of U.S.companies receive the highest level of compensation in terms of long-term incentives and variable bonuses.