Which of the Following Statements Is CORRECT

question 39

Multiple Choice

Which of the following statements is CORRECT?

• A) One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the firm's capital structure.
• B) The threat of takeover generally increases potential conflicts between stockholders and managers.
• C) Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.
• D) The threat of takeovers tends to reduce potential conflicts between stockholders and managers.
• E) The creation of the Securities and Exchange Commission (SEC)has eliminated conflicts between managers and stockholders.

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Definitions:

Cash Balance

The amount of cash held in a company's bank account and on hand at any given time.

Dividends Declared

Profits distributed by a company to its shareholders out of its earnings, based on the number of shares owned.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders, often reinvested in the business or kept as a reserve.