When Shareholders Pursue Strategies Such as Taking Excessive Risks or Paying

question 30

Multiple Choice

When shareholders pursue strategies such as taking excessive risks or paying excessive dividends, these will result in:
I.no action by debtholders since these are equityholder concerns;
II.positive agency costs, as bondholders act on various restrictions and covenants, which will diminish firm value;
III.investments of the same risk class that the firm is in

• A)I only
• B)II only
• C)III only
• D)I and III only

---

Definitions:

Segmented Income Statement

An income statement that separates financial information into segments, such as departments or products, to analyze each segment's profitability.

Absorption Costing

Absorption costing is an accounting method allocating all manufacturing costs to the product, including fixed and variable costs.

Net Operating Income

A financial metric that calculates a company's profit after subtracting operating expenses but before interest and taxes.

Single Product

A business strategy or market condition where a company focuses on and sells only one product.