When a Stockholder's Stake Is Worthless the Firm Runs the Risk

question 98

Multiple Choice

When a stockholder's stake is worthless the firm runs the risk of ____________.

• A) Underinvestment because there isn't much capital for investment
• B) Overinvestment because there isn't much wealth at risk
• C) Having bondholders invoke the Separation principle to obtain first rights on the firm's assets
• D) None of these

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Definitions:

Lending Purposes

The specific reasons or objectives behind the issuance of a loan, such as business expansion or purchase of equipment.

Financing Activities

Transactions between a company and its creditors or investors used to fund the company's operations or expansions, reflected in the cash flow statement.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that aim to make international financial reporting more transparent and comparable across global boundaries.

Cash Receipts

The collection of money, including coins, currency, checks, and electronic funds transfers, by a business from its customers.