A manager's bonus plan is specified as follows: the manager will receive a bonus only if...

 

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A manager's bonus plan is specified as follows: the manager will receive a bonus only if the firm's ROE ratio (i.e., net income divided by shareholders' equity) is between 0.10 and 0.30, and the higher ROE, the more bonus the manager will receive. Required: Referring to the agency theory, explain how the manager can be opportunistic if the firm's ROE ratio is: i. far below 0.10; ii. between 0.10 and 0.30; iii. above 0.30. A manager's bonus plan is specified as follows: the manager will receive a bonus only if the firm's ROE ratio (i.e., net income divided by shareholders' equity) is between 0.10 and 0.30, and the higher ROE, the more bonus the manager will receive. Required: Referring to the agency theory, explain how the manager can be opportunistic if the firm's ROE ratio is: i. far below 0.10; ii. between 0.10 and 0.30; iii. above 0.30.

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Answer Managers Bonus and Return on Equity The Manager can give a bonus based on the ROE as it is th... View the full answer