A Type of Agency Problem That Results in Shareholders Gaining

question 39

Multiple Choice

A type of agency problem that results in shareholders gaining by choosing not to finance new,positive-NPV projects is:

• A)asset substitution.
• B)debt overhang.
• C)excessive risk-taking.
• D)distress costs.

---

Definitions:

Market Price

The current price at which a good or service can be bought or sold in a marketplace, determined by the forces of supply and demand.

Economic Profits

Profits calculated by subtracting both explicit (direct payments) and implicit (opportunity) costs from total revenues.

Market Price

The ongoing selling or buying rate for an asset or service in a certain market.

Satisfier Factors

Elements related to the nature of the job itself, such as achievement, recognition, and work itself, that lead to job satisfaction.