Question

1A)

Factors affect managerial behavior:

(Select all that apply)

Group of answer choices

Managerial compensation packages

Direct intervention by shareholders

Nothing can affect managerial behavior

The threat of takeover

Take riskier projects

The threat of firing

1B)

Possible Reasons Markets May Not Be Efficient:

(Select all that apply)

Group of answer choices

Cognitive biases

Behavioral finance

It is costly and/or risky for traders to take advantage of mispriced assets.

Securities are normally in equilibrium and are “fairly priced.”

1C)

What is the relationship between Economic value added (EVA) and market value added (MVA)?

(Select all that apply)

Group of answer choices

Positive EVA on an annual basis helps to ensure MVA is positive.

MVA is applicable to the entire firm, while EVA can be calculated on a divisional basis as well.

If EVA is positive, then AT operating income > cost of capital needed to produce that income.

MVA = EVA * (1 – Tax rate)

Answer 1

Answers-

1A)

The following factors affect the managerial behavior

Managerial compensation plans
Direct intervention by shareholders
The threat of takeover
The threat of firing

The options Nothing can affect managerial behavior and Take riskier projects are incorrect.

1B)

The following are Possible Reasons Markets May Not Be Efficient

Cognitive biases cause investors to make systematic mistakes that lead to inefficiencies.

Behavioral Finance borrows insights from psychology to better understand how irrational behavior can be sustained over time.

It is costly and/or risky for traders to take advantage of mispriced assets.

The last option is incorrect
Securities are normally in equilibrium and are fairly priced is incorrect.

1C)

The following is relationship between Economic value added (EVA) and market value added (MVA)

Positive EVA on an annual basis helps to ensure MVA is positive.

MVA is applicable to the entire firm, while EVA can be calculated on a divisional basis as well.

The EVA is positive the after tax operating income exceeds the cost of capital or WACC needed to produe that income and management's acions are adding value of shareholders.

The final equation is incorrect

EVA = [(EBIT X (1 - t) ] - $ WACC
MVA = market value - total capital