HRM-200 5-2 Smartbook assignment Q#8

Compensation at Nonpublic Companies The executive compensation programs of thelargest public companies often include the types of equity-based compensation such as stockoptions and performance shares described in this chapter. Smaller nonpublic companies oftenhave the same types of strategic goals and want to provide the same types of compensationplans but do not have the equity types of compensation to offer because they do not have publicly traded stock.Required:1. What is the primary advantage of equity-based compensation such as stock options and performanceshares?a. It is easier to administer than flat salary or performance-based cash payments.b. Short-term stock prices cannot be influenced inappropriately by executives.c. It aligns managers’ incentives (to increase value) with those of the shareholders.d. It is more consistent with generally accepted accounting procedures than other forms of compensation.2. What types of compensation can nonpublic companies offer that would…

1) "Information asymmetry lies at the heart of the ethical dilemma that managers, stockholders, and bondholders confront when companies initiate management buyouts or swap debt for equity." Comment on this statement. What steps might a board of directors take to ensure that the company's actions are ethical with regard to all parties? 2) Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase. What course of action would you recommend to your CEO? If your CEO came to you first and recommended reducing the current quarter's earnings, what would be your response?

Identify the wrong statement about Shareholders and their impact to corporate objectives: a. The voting power of the shareholders is equal to the percentage of shares they own b. None of these c. Shareholders receive the appreciation of the company's value d. The board of directors' makeup is voted by shareholders of the company

You are offered a job you know that accepting this job may eventually lead to a promotion into the role of the financial manager. As the potential financial manager, what federal and shareholder requirements would you need to be familiar with in order to ensure that you are being completely compliant? While investigating the shares offered to you by your potential boss, you discover that the company you are considering working for is not registered as required under the Securities Act of 1933. How does this influence you as a potential employee and as a potential shareholder relative to any applicable statutes or laws?

Which of the following methods would be most likely to decrease the agency problems by helping motivate managers to act in the best interests of shareholders?   1. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.   2. Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock.   3. Decrease the use of restrictive covenants in bond agreements.   4. Take actions that reduce the possibility of a hostile takeover.   5. Elect a board of directors that allows managers greater freedom of action.

Which of the following statements is true? a. Restrictive covenants in debt agreements are an effective way to reduce agency conflicts between stockholders and managers.   b. Managers generally welcome hostile takeovers since they often increase the company’s stock price. None of the choices is correct.   c. One advantage of organizing your business as a corporation is that your shareholders are not subject to limited liability.   d. An effective ethics program can enhance corporate value by producing a number of positive benefits like building shareholder confidence.

Corporate management and the Board of Directors fulfil a vital role to ensure good corporate governance within a company. Which of the reasons, listed below, has been a major contributing factor to corporate governance scandals? Question 16 options:   Changes to government regulations regarding public reporting and disclosure   Shareholders have dumped the company's stock   Unclear separation of ownership and management   Maximizing current share holder value tends to focus on the value near term

Which of the following is a disadvantage of a company going public? Going public mandates compliance with ongoing SEC disclosure requirements. The amount of equity capital that can be raised in the public equity markets is typically less than the amount that can be raised through private sources. A company can raise equity capital only once by going public. There are millions of investors in public stock markets, and it is not easier for firms to reach these investors through public markets.

Which of the following statements are correct regarding Sarbanes- Oxley (SOX) and Dodd-Frank (DF)? I. DF requires that public firms offer an advisory vote to shareholders on top executive compensation. II. SOX imposes criminal penalties on the CEO and CFO for fraud or for retaliation on whistle blowers. III. The compliance costs for SOX can be substantial and have encouraged some firms to "go dark." IV. DF requires companies to disclose whether directors and officers are permitted to hold put options which protect their ownership position in the firm. O I and II only O I and III only O II and III only O I, II, and III only O I, II, III, and IV

Which of the following is incorrect:  Options:   a)  The Market for Corporate Control is an important external mechanism for encouraging corporate managers to act in their shareholders’ best interests   b)  GMU Dean Emeritus Henry G. Manne developed the theoretical concept of “Market for Corporate Control”   c)  The Market for Corporate Control was enacted into law by the Williams Act   d)  The Market for Corporate Control protects rationally ignorant shareholders   e)  None of the above

A corporation whose managers are separate from its owners will face zero agency costs when it uses stock options as part of its compensation package for upper managers True False

Assume you are the financial director of a public company which has been experiencing a decline in financial performance. At a board meeting it is being proposed that all directors and senior managers receive a substantial increase in pay and bonuses. One director has stated that the figures can be masked, legitimately, in the annual report and accounts.   It has also been proposed not to increase the dividend to shareholders, stating that the money is needed for essential investment. The company does have assets which are in need of replacement. What do you think about these proposals? Do they suggest good, bad, or indifferent corporate governance?

Which of the following statements is CORRECT? Select one: a. Conflict of interest between shareholders and managers is not possible. b. By definition, the agency problem can only take place in corporations but not in proprietorships and partnerships. c. Conflict of interest between shareholders and bondholders is not possible. d. Managers always work to maximize the long-run value, and therefore the price, of their company stocks. This is exactly what shareholders desire.

2 (a)There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work? (b)There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail? (c)It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?

What has been the main thrust of recent changes in the financial reporting rules following the financial scandals of Enron, Worldcom, etc.? Multiple Choice To improve internal control over companies' financial reporting. To add to the work of the companies' external accountants. To force the companies to disclose more of their internal information. To provide incentives to increase their net income. < Prev 27 of 50 Next

46. Which of the following situations are likely to reduce agency conflicts between stockholders and managers? Group of answer choices a. Paying managers large fixed salaries. b. Enacting laws that increase the likelihood of corporate takeovers. c. Placing restrictive covenants in debt agreements like avoiding risky projects. d. All of the statements are correct. e. Two of the statements are correct.

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Some accountants argue that they should be allowed to invest in a company's stock as long as they themselves aren't involved in working on the company's audit or consulting. What do you think of this idea?

Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the board of directors have voiced some concerns about adopting these plans, based on news accounts related to a recent accounting standard in this area. They would like you to conduct some research on this recent standard so they can be better informed about the accounting for these plans. Instructions Access the IFRS authoritative literature at the IASB website. (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) a.   Identify the authoritative literature that addresses the accounting for share-based payment compensation plans. b.   Briefly discuss the objectives for the accounting for share-based…

1. (Political Motivations for Policies) Ever since the unethical actions of some employees of Enron Corp. first came to light, ethics in accounting has been in the news with increasing frequency. The unethical actions of the employees essentially involved their selection of certain accounting policies for the company. In many instances, GAAP does allow firms some flexibility in their choice of legitimate accounting policies. This is true, for example, in choosing an inventory cost formula. However, the company's choice of policies may ultimately be influenced by several specific factors. Instructions State three of these factors and explain why each of them may influence an accounting policy choice.

Which of the following statements is NOT CORRECT? "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares. Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC. e When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. O It is possible for a firm to go public and yet not raise any additional new capital. O When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is "closely, or privately, held.

The Sarbanes-Oxley (SOX) Act of 2002 is federal legislation designed to protect publicly held companies from frivolous litigation. The Act makes it m pursue litigation based solely on commentary by company executives and decreased penalties for violation of existing securities laws. True or False True False