The board of directors can actively monitor the

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The board of directors can actively monitor the actions of managers to keep pressure on them to act in the best interest of shareholders. Financial markets play a key role in monitoring management. Firms that fail to maximize shareholder wealth may be taken over and their management team replaced. Compensation plans can be put in place to reward managers when they maximize shareholder wealth. The Sarbanes-Oxley Act of 2002 (SOX) was passed to directly confront concerns about both agency and ethical issues. Select all the following statements that correctly describe this act. The purpose of SOX is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the security laws. While the goal of SOX is to provide greater protection against accounting fraud and financial misconduct, the demanding reporting requirements of SOX are quite costly and may inhibit firms from listing on U.S. stock markets. SOX holds corporate advisors who have access to or influence on company decisions, legally accountable for any instances of misconduct. 1.4 There are four basic principles of finance. Which principle correctly describes the following statement: "A dollar today is worth more than a dollar received in the future. Conversely, a dollar received in the future is worth less than a dollar received today"? Principle 1: Money has a time value. Which basic principle of finance correctly describes the following statement: "Profit is an accounting concept designed to measure a business's performance over an interval of time. Cash flow is the amount of cash that can actually be taken out of the business over this same interval"? Principle 3: Cash flows are the source of value. Which basic principle of finance correctly describes the following statement: "Investors respond to new information by buying and selling their investments. The speed with which investors act and the way that prices respond to the information determine the efficiency of the market"? Principle 4: Market prices reflect information. Which basic principle of finance correctly describes the following statement: "We won't take on additional risk unless we expect to be compensated with additional return "? Principle 2: There is a risk-return tradeoff.
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1.N Agency Theory : The study of the relationship between managers and stockholders Stock Options : mechanism often used to align the goals of managers and stockholders If a company grants stock options to upper level management to encourage performance the exercise price needs to be Above the current market price.; When markets react instantaneously to the release of new information it is a sign of market efficiency . Stock prices tend to already reflect expected EPS when markets are efficient.
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  • Fall '08
  • HOYT
  • Finance, Annual rate

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