When Shareholders Pursue Selfish Strategies Such as Taking Large Risks

question 35

Multiple Choice

When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends, these will result in:
I. no action by debtholders since these are equity holder concerns
II. positive agency costs, as bondholders impose various restrictions and covenants, which will diminish firm value
III. investments of the same risk class that the firm is in

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

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Definitions:

Expert Opinion

Insights or views given by a person recognized as an authority in a specific field, often used to inform decisions or clarify complex issues.

Management Forecast

The process of predicting future trends, outcomes, or behaviors in business operations based on current data and analysis.

Trend Analysis

The practice of collecting information and attempting to spot a pattern, or trend, in the data, often used for predicting future events or behaviors.

Management Forecasts

The opinions (judgments) of supervisors, department managers, experts, or others knowledgeable about the organization’s future employment needs.