Fundamentals Of Financial Management
14th Edition
ISBN: 9781305629080
Author: Eugene F. Brigham, Joel F. Houston
Publisher: South-western College Pub (edition 14)
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Chapter 1, Problem 13Q
Summary Introduction
To identify: The criteria used for setting compensation for divisional managers and CEO would be same or different.
Compensation Package: The compensation package of should structured in that way which seems attractive and to perform actively. If the compensation package is good, the manager will focus on the maximization of stockholders value. The compensation package should be fair.
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Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than in
their own interests. What strategies are available to shareholders to help ensure that managers are motivated to act this way?
Shareholders can do the following: (Select all the choices that apply.)
A. Ensure that employees are paid with company stock and/or stock options.
B. Write contracts that ensure that the interests of the managers and shareholders are closely aligned.
C. Mount hostile takeovers.
D. Ensure that all employees are paid a percentage of the company's revenue
E. Ensure that underperforming managers are fired.
Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between managers and shareholders.a. A fixed salary.b. Stock in the firm that must be held for five years.c. A salary linked to the firm’s profits.
Assume you have been hired by Hilton Hotels and Resorts. As part of your new role in the accounting department, you have been tasked to set up a responsibility accounting structure for the company. As your first task, your supervisor has asked you to give an example of a cost center, profit center, and an investment center within the Hilton organization. Your supervisor is a little unsure of the difference between a profit center and investment center and would like you to explain the difference.
Chapter 1 Solutions
Fundamentals Of Financial Management
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