Equity Contracts Account for a Small Fraction of External Funds

question 63

Multiple Choice

Equity contracts account for a small fraction of external funds raised by American businesses because

• A)costly state verification makes the equity contract less desirable than the debt contract.
• B)of the reduced scope for moral hazard problems under equity contracts,as compared to debt contracts.
• C)equity contracts do not permit borrowing firms to raise additional funds by issuing debt.
• D)there is no moral hazard problem when using a debt contract.

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Definitions:

Environmental Signals

Information or cues from the environment that indicate changes or trends, relevant to organizations for strategic planning.

Stress Situations

Scenarios that induce a high level of psychological or emotional strain, potentially affecting decision-making processes.

Sales Communicator

An individual skilled in communicating the benefits and features of a product or service to potential customers to facilitate sales.

Persuasive Signals

Indicators or gestures used to influence or convince someone towards a specific viewpoint or action.