Reference no: EM132958114

Problem 1: Which one of the following is least apt to encourage managers to act in the best interest of shareholders?

A. Shareholder election of the board of directors, who in turn select managers

B. Threat of a takeover by another firm

C. Linking manager compensation to share value

D. Compensating managers with fixed salaries

E. Granting stock options to key managers

Problem 2: You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?

A. Option A is preferable because it is an annuity due.

B. Option A is the better choice of the two given any positive rate of return.

C. Option B has a higher present value than option A given a positive rate of return.

D. Option B has a lower future value at Year 5 than option A given a zero rate of return.

E. Both options are of equal value given that they both provide $20,000 of income.