When Shareholders Pursue Selfish Strategies Such as Taking Large Risks

question 10

Multiple Choice

When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends,these will result in:

• A) no action by debtholders since these are equity holder concerns.
• B) positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.
• C) investments of the same risk class that the firm is in.
• D) undertaking scale enhancing projects.
• E) lower agency costs, as shareholders have more control over the firm's assets.

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Definitions:

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A graphical representation that displays the relationship between two quantitative variables, using dots to represent individual data points.

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A statistical model that assumes a linear relationship between input variables (independent variables) and a single output variable (dependent variable).

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The measure of the steepness or incline of a line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.