Module 7 Quiz

Tim Cook, the CEO of Apple, recently had his compensation restructured to emphasize which of the following? A. Apple's share price relative to the S&P 500. B. Apple's revenues relative to Microsoft. C. Apple's charitable giving relative to Apple's peer companies. D. Apple's market share relative to Samsung

A. Apple's share price relative to the S&P 500.

"American executives argue—conveniently enough—that their compensation should be compared to what other American executives are paid. This argument has tended to be persuasive to American boards, which—conveniently enough—are made up primarily of American corporate executives. And big American investment management firms—also led by American corporate executives—likewise think this makes sense." The above quote from one of the reading assignments implicates which of the following? A. Duty of Loyalty. B. Shareholder Voting Mechanisms. C. Pass Through Taxation. D. All of the other answers.

A. Duty of Loyalty. A conflict of interest is possible when a board member's salary in another position can be affected by her vote on a CEO's compensation in the company for which she serves as Director. Conflicts of interest are associated with the Duty of Loyalty—acting in the best interests of the corporation, not one's personal best interests.

Which of the following is NOT a consideration when choosing a new business entity type, as discussed in the Textbook and lectures? A. Marital status of the owners. B. Venue the business entity will register in. C. Future financing needs. D. Desired ownership structure.

A. Marital status of the owners.

According to the reading, what is debt with elements of equity called? A. Quasi-Debt. B. Quasi-Equity. C. Preferred Stock. D. Unsecured Debt.

A. Quasi-Debt.

Which of the following was NOT discussed in the lecture as an option for controlling CEO compensation? A. Salary only compensation packages. B. Multipliers v. worker pay. C. Limits on golden parachutes and bonus payments. D. Compensation ceilings.

A. Salary only compensation packages.

Which of the following is NOT a potential issue with using stock options as part of CEO compensation? A. Stock options promote a long term view that may hurt the financial interests of shareholders who do not wish to "buy and hold" a company's stock. B. Stock options can skew risk—CEOs can make a fortune when stock prices climb but feel no real effects when stock prices decline. C. Stock options promote a short term view that may hurt the long term financial prospects of shareholders. D. A stock option heavy compensation package my motivate a CEO to manipulate the numbers to make sure short term targets are met.

A. Stock options promote a long term view that may hurt the financial interests of shareholders who do not wish to "buy and hold" a company's stock. Stock options are accepted as part of a CEO's compensation package; however, they are widely believed to motivate executives to have a focus on near-term numbers at the potential cost of long-term gains.

In the Forbes article, who does the author believe is the owner of "the money" at issue in Milton Friedman's article? A. The Corporation. B. The Shareholders. C. The Employees. D. The Customers.

A. The Corporation.

A CEO's base salary is paid whether the company does well or poorly. A. True B. False

A. True

Milton Friedman believes that a sole proprietorship's situation is different than a corporation's situation for purposes of adding social responsibility to the ways to judge a business. A. True B. False

A. True

Studies show that common stock ownership best aligns a CEO's incentives with shareholder interests. A. True B. False

A. True

The author of the Forbes article accepts Milton Friedman's premise that corporate executives are employees of the shareholders. A. True B. False

A. True

Which of the following is NOT mentioned in the reading as a measure for performance in a CEO's "pay for performance" compensation structure? A. Wall Street analysts' projections. B. Return on equity. C. Revenue growth. D. Share price appreciation.

A. Wall Street analysts' projections.

The Harvard Business Review article argues that there is a moral crisis regarding CEO compensation that must be righted. A. True B. False

B. False

The personal tax rates of the owners has no impact on the choice of business entity decision A. True B. False

B. False

Which of the following is an argument for a corporation's only responsibility being maximizing shareholder interest, as described in the reading assignment? A. Executives, not the corporation, have social responsibilities regarding charity that they must uphold. B. Executives are the persons best situated to determine the desires of the shareholders and can best deploy corporate resources for charitable purposes. C. Political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses. D. The criterion of performance is straightforward, and the persons among whom a voluntary agency arrangement exist are clearly defined.

D. The criterion of performance is straightforward, and the persons among whom a voluntary agency arrangement exist are clearly defined. Milton Friedman's article specifically mentioned the ability to measure and judge the performance of a corporation and its executives as a significant advantage of using shareholder value as the fundamental purpose of a corporation.