which of the following cases will the agency problem between shareholders and managers be the greatest? a) 75% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him. b)You own 50% of the common stock of the company. The other 50% is owned by 5 mutual funds. c) The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 2% of the ou
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In which of the following cases will the agency problem between shareholders and managers be the greatest?
a) 75% of the common stock is owned by the founder of the company who decided to retire and hired a manager to run his business for him.
b)You own 50% of the common stock of the company. The other 50% is owned by 5 mutual funds.
c) The common stock of the company is owned by many diverse shareholders, with no shareholder owning more than 2% of the outstanding stock.
d)All top managers in the company own significant amounts of stock and stock options.
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- The account Retained Earnings is: the amount paid as dividend. a subdivision of paid-in capital. net profit accumulated by the corporation. reported as an expense in the income statement.Which of the following situations is unlikely to represent control over an investee? i. Owning 55% and being able to elect 4 of the 7 directors ii. Owning 51%, but the constitution requires that decisions need the unanimous consent of all shareholders iii. Owning 45% of the votes and having an agreement with another shareholder that allows you to use their 10% of the votes iv. Owning 40% of the total ordinary shares, but having a majority of voting rights within the investeeTo which of the following does a director owe his/her statutory duties? Select one: a. The members personally b. The company as a whole c. The board of directors. Edward, an accountant, is hired by C Ltd to prepare a report on the financial strength of C Ltd. Edward is informed that the purpose of the report is to persuade H Ltd to buy all C Ltd’s shares. Edward prepares the report but carelessly fails to identify that C Ltd is not profitable. Which of the following is accurate concerning Edward’s potential liability for negligent misstatement: Select one: a. Edward will not be liable to H Ltd because there was no contract between him and H Ltd b. Edward will not be liable because his advice was prepared for C Ltd, not H Ltd c. Edward will be liable because the advice was prepared specifically for the purpose of persuading H Ltd to acquire shares in C Ltd, and it was reasonable for H Ltd to rely on Edward's advice. d. Edward will not be liable because it was not reasonable for…
- The Darkroom Windowshade Company has 100,000 shares of stock outstanding. The investors in the firm own the following numbers of shares: investor 1 has 20,000 shares; investor 2 has 18,000 shares; investor 3 has 15,000 shares; investor 4 has 10,000 shares; investor 5 has 7,000 shares; and investors 6 through 11 have 5,000 shares each. What is the minimum number of investors it would take to vote to change the company's top management? If investors 1 and 2 agree to vote together, can they be certain of always getting their way in how the company will be run?Larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the company's objectives. True or False: Larry can invest in another company that is selling class A stocks to the public, and class B shares will be retained by company insiders. This will help the founders maintain control in the company. True False Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The company's stock currently is valued at $43.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of $34.40 per share. Larry worries about the value of his investment. Larry's current investment in the company is $86,000 investment will be worth This scenario is an example of dilution If the company issues new shares and Larry makes no…Bob Smith, The accountant of ABC Ltd. has been tasked with redeeming part of the shares outstanding for his corporation. Bob is unsure how he should charge the cost of the redemption to shareholder's equity accounts. Required:Explain to Bob how the cost should be charged to shareholder’s equity accounts. Please provide specific responses for the following circumstances:1) When the cost is lower than the average price per share.2) When the cost is higher than the average price per share.
- Which of the following situations are unlikely to represent control over an investee? A. Owning 51%, but the constitution requires that decisions need the unanimous consentof shareholders B. Having currently exercisable options which would take the shareholding in theinvestee to 55% C. Owning 40% of the shares but having majority of voting rights within the investee D. Owning 55% and being able to elect 4 of the 7 directorsWhich of the following actions would the Board of Directors have to have a shareholder vote in order to enact? A. Hiring a new CEO B. Approving CEO Compensation over $1M C. Selling the company to a holding company D. Purchasing a company as a subsidiaryTypes of common stock In some cases, individuals who start a business have special voting rights that help them exercise more control over the firm. They own a special class of stock called (dual, founder) shares. Consider this case: The CEO of EchoStar Communications, Charlie Ergen, owned around 5% of the company’s stock, but his multiple votes per share gave him around 90% of the vote. Source: “Dish Network 2010 Annual Report,” on Dish Network Investor Relations, http://files.shareholder.com/downloads/DISH/1330128565x0x480914/DC45515A-D65F-475D-B6C2-CF83AE7A10D6/DISH_-_Web_Posting_-_3.30.11.pdf. Based on this example, which of the following statements is true? A. Classified shares are not issued with the purpose of providing super voting rights to a certain class of investors. B. Classified shares have super voting rights, which give more control to a certain class of investors.
- At the beginning of the question-and-answer portion of the annual shareholder’s meeting of Kemper Ltd., shareholder Mike Kerwin asks, “Why did management sell the holdings in UMW Company at a loss when this company has been very profitable during the period Kemper held its shares?” Since President Tony Chavez has just concluded his speech on the recent success and bright future of Kemper, he is taken aback by this question and responds, “I remember we paid £1,300,000 for those shares some years ago. I am sure we sold these shares at a much higher price. You must be mistaken.” Kervin retorts, “Well, right here in footnote number 7 to the annual report it shows that 240,000 shares, a 30% interest in UMW, were sold on the last day of the year. Also, it states that UMW earned £520,000 this year and paid out £160,000 in cash dividends. Further, a summary statement indicates that in past years, while Kemper held UMW shares, UMW earned £1,240,000 and paid out £440,000 in dividends. Finally,…Dover Corporation owns 18% of Hassan, Inc.'s voting stock. The remaining Hassan stock is held by a diverse group of investors with small stakes. Monica Kurtz, Dover's president and a member of Hassan's board of directors, has a strong influence on Hassan's policies. Dover's net income rises as it receives dividends from Hassan under the market value method of accounting for investments. Dover pays President Kurtz a bonus based on a percentage of the company's net income. As a result, Kurtz can exert some control over her personal bonus by influencing Hassan's dividends. In 20X0, there is a recession, and corporate income is low. Kurtz wields enough power to have Hassan, Inc. pay a large cash dividend. The action requires Hassan borrowing so much money that he may face financial difficulties. Required: In getting Hassan to pay the large cash dividend, is Kurtz acting within her authority as a member of the Hassan board of directors? Are Kurtz s actions ethical? whom can her actions…All of the following statements are correct, except, An investor may have significant influence even if it has 15% voting power. An investor may not have significant influence even if it has more than 20% voting power. Under the equity method that is used to account for investment in associates, cash dividends are treated as income. Share dividends do not result to a change in the total equity of the investee.
