The Presence of a Large Amount of Debt Can Encourage

question 112

Multiple Choice

The presence of a large amount of debt can encourage shareholders to take excessive risk because:

• A)equity holders are risk seeking by nature.
• B)the costs of failure are borne largely by debt holders.
• C)debt holders are risk seeking.
• D)firm value increases with risk taking.
• E)this will increase profits.

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Definitions:

Director

An individual appointed or elected to the board of an organization who is responsible for overseeing and guiding the company's policies, finances, and operations.

Systems Software

The class of computer instructions that serve primarily as an intermediary between computer hardware and application programs; provides important self-regulatory functions for computer systems.

Price

The amount of money expected, required, or given in payment for something.

Hardware

The physical components of a computer system, such as the CPU, memory devices, and input/output devices.