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.

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Definitions:

Advance Orders

Pre-orders made by customers for products or services that are not yet available, ensuring early access or delivery.

Single-Price Monopoly

A market condition where a monopolist charges all consumers the same price for its product, despite the cost of production.

Pay-per-view

A type of television or online streaming service where the viewer pays to watch a particular event or program, typically used for special events or premium content.

Marginal Cost

The outgoings involved in creating one more unit of a product or service.