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xeze [42]
3 years ago
15

The following statement was made by the vice president of finance of The Electric Company: "The managers of a company should use

the same information as the shareholders of the firm. When managers use the same information in guiding their internal operations as shareholders use in evaluating their investments, the managers will be aligned with the stockholder's profit objectives."
Please respond to the vice president's statement....
Business
1 answer:
RideAnS [48]3 years ago
8 0

Answer:

Check the following explanation.

Explanation:

The goals of managers and shareholders are not always aligned. Agency theory suggests  this misalignment creates the need for costly monitoring through compensation contracts.

To align the goals of the two parties,compensation contracts should be designed to motivate the executive to make decisions that will not only increase his or her wealth, but will also increase shareholder wealth. Steps taken to increase shareholder wealth should be reflected in improved firm performance.Including both components in the contracts helps ensure the decisions of the executive are linked to various time horizons.

Shortterm components motivate the executive to make decisions that have an immediate affect on the firm. Long-term components are necessary to lengthen the decision horizon of the executive and enhance the likelihood of continued improvement in firm value. The long-term incentives in these  contracts can be based on improved shareholder wealth as well as improved firm performance.

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Consider the following three stocks. (a) Stock A is expected to provide a dividend of $10 a share forever. (b) Stock B is expect
Archy [21]

Answer:

The stock A is most valuable as the fair value of Stock A is $100 which is more than the fair value of Stock B ( $83.33) and Stock C ($34.28).

Explanation:

to calculate the fair price of the stocks, we will use the DDM or dividend discount model. The DDM bases the value of a stock on the present value of the expected future dividends from the stock.

Let r be the discount rate which is 10%.

a.

The stock is like a perpetuity as it pays a constant dividend after equal intervals of time and for an indefinite period.

The price of this stock can be calculated as,

Price or P0 =  Dividend / r

P0 = 10 / 0.1  = $100

b.

The constant growth model of DDM can be used to calculate the price of this stock as its dividends are growing at a constant rate forever.

P0 = D1 / r - g

Where,

  • D1 is the dividend for the next period
  • r is the cost of equity or discount rate
  • g is the growth rate in dividends

P0 = 5 / (0.1 - 0.04)

P0 = $83.33

c.

The price of this stock can be calculated using the present of dividends.

P0 = 5 / (1+0.1)  +  5 * (1+0.2) / (1+0.1)^2  +  5 * (1+0.2)^2 / (1+0.1)^3  +  

5 * (1+0.2)^3 / (1+0.1)^4  +  5 * (1+0.2)^4 / (1+0.1)^5  +  5 * (1+0.2)^5 / (1+0.1)^6

P0 = $34.28

3 0
3 years ago
Which of the following journal entries is recorded correctly and in the basic format? a. Salaries and Wages Expense 550, Cash 1,
Yuki888 [10]

Answer:

d.  Salaries and Wages Expense 550, Advertising Expense 950, Cash 1,500

Explanation:

Whenever a new entry is posted firstly the accounts which are debited are entered.

Secondly the accounts which are credited are posted.

And, the total of debit and total of credit shall always be same, so that the entry is recorded properly.

As an expense, it reduces income and is always debited.

And as for settling the expenses cash is paid, cash being an asset when reduced will be credited.

Total expenses debited = Salaries and Wages + Advertising Expense = 550 + 950 = 1,500

Therefore, as against it cash paid = $1,500 shall be credited.

Cash = $1,500

Thus, correct option is d.

5 0
3 years ago
One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $500 per
jekas [21]

Answer: Number of months = 66.87 months

Explanation:

Given that,

Monthly Payment = $500

Interest rate(r) = 1.95% per month

Current Balance = $18,500

Number of months(t) = ?

Current\ balance = Monthly\ payment\times(\frac{1-present\ value\ factor}{r})

Current\ balance = Monthly\ payment\times(\frac{1-\frac{1}{(1+r)^{t}} }{r})

18,500 = 500\times(\frac{1-\frac{1}{(1+0.0195)^{t}} }{0.0195})

\frac{18,500}{500}\times0.0195=1-\frac{1}{1.0195^{t} }

\frac{1}{1.0195^{t}}=1-0.7215

1.0195^{t}=\frac{1}{0.2785}

1.0195^{t}=3.5906

Taking log on both side

t log(1.0195) = log(3.5906)

t = \frac{0.5551}{0.0083}

t = 66.87 months

6 0
3 years ago
A corporation had the following assets and liabilities at the beginning and end of this year.
ludmilkaskok [199]

Answer:

Net Income / Net Loss:

Scenario A    $35,888 (-58,000 + 22,112)

Scenario B    $37,088 (-58,000 + 22,112 + 1,500)

Scenario C      -$9,112 (-58,000 + 45,000 + 22,112)

Scenario D      $17,112 (-58,000 + 35,000 + 22,112 + 18,000)

Explanation:

a) Data and Calculations:

                 Beginning   Ending  

Assets       $57,000   $24,463

Liabilities    115,000      46,575

Equity        (58,000)   ($22,112)

Net Income / Net Loss:

Scenario A    $35,888 (-58,000 + 22,112)

Scenario B    $37,088 (-58,000 + 22,112 + 1,500)

Scenario C      -$9,112 (-58,000 + 45,000 + 22,112)

Scenario D      $17,112 (-58,000 + 35,000 + 22,112 + 18,000)

b) The net income is the difference between the beginning equity plus new investments and the ending equity and dividends.

5 0
3 years ago
Profit is not the objective of business but it is the result of business​
yarga [219]
That is true. Good job
4 0
3 years ago
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