Under What Conditions Would a Policy of Maximizing the Value

question 65

Multiple Choice

Under what conditions would a policy of maximizing the value of the firm not the same as a policy of maximizing shareholders' wealth?

• A) If the issue of debt increases the probability of bankruptcy
• B) If the firm issues debt for the first time
• C) If the beta of equity is positive
• D) If an issue of debt affects the market value of existing debt

---

Definitions:

Principal

The original amount of money on which interest is calculated.

Composition

The act of combining two functions by applying one function to the result of another.

Function

A mathematical relation in which each element of a set of inputs is associated with exactly one element of a set of outputs.

Inverse Function

A function that reverses the operation of a given function, so that if the original function applied to an input gives a certain output, the inverse function applied to that output returns the original input.