The Agency Problem Is Best Defined as a Conflict of Interest

question 21

Multiple Choice

The agency problem is best defined as a conflict of interest between a firm's:

• A) Various employees.
• B) Various managers.
• C) Managers and the firm's employees.
• D) Stockholders and the firm's managers.
• E) Stockholders and the firm's debtors.

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Definitions:

Equity Multiplier

The equity multiplier is a financial ratio that measures the proportion of a company's total assets financed by its shareholders' equity.

Price-earnings Ratio

A valuation metric for stocks, calculated by dividing the current market price of a stock by its earnings per share (EPS).

Debt-to-equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets, typically used to assess leverage and financial health.

Times Interest

A financial ratio, also known as interest coverage ratio, that measures a company's ability to meet its interest payments on outstanding debt.