When Faced with Financial Distress, Managers of Firms Acting on Behalf

question 73

Multiple Choice

When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to:
I.favor high-risk, high-return projects even if they have negative NPV;
II.refuse to invest in low-risk, low-return projects with positive NPVs;
III.delay the onset of bankruptcy as long as they can

• A)I only
• B)II only
• C)III only
• D)I, II, and III

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Definitions:

Marginal Revenue

The heightened income realized from the sale of one more unit of a good or service.

Marginal Cost

The price involved in creating one more unit of a specific good or service.

Marginal Revenue

The additional income gained from selling one more unit of a good or service; it’s a critical concept for determining the optimal level of output for a firm.

Profit-maximizing Firm

A business entity whose primary goal is to generate the highest possible profit from its operations and investments.