The Following Are Agency Problems Associated with Capital Budgeting

question 21

Multiple Choice

The following are agency problems associated with capital budgeting:
I.reduced effort
II.perks or private benefits
III.empire building
IV.entrenching investments
V.avoiding risks

• A)I,II and V only
• B)I,II,and IV only
• C)I,II,III,and IV only
• D)I,II,III,IV,and V

Understand how investment decisions are influenced by changes in interest rates.

Describe the role of taxation and government policies in affecting the loanable funds market.

Analyze the causes and effects of shifts in the supply and demand curves for loanable funds.

Explain the concept of crowding out and its implications for the economy.

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Definitions:

Contribution Format Income Statement

An income statement format that separates fixed costs from variable costs and is used to calculate the contribution margin.

Unit Sales

The quantity of products sold by a company, not accounting for any bulk, wholesale, or grouping discounts.

Margin of Safety

The difference between actual sales and the break-even point, indicating the amount by which sales can drop before a business incurs a loss.

Degree of Operating Leverage

Degree of operating leverage measures the sensitivity of a company's operating income to a change in sales volume, indicating the impact on profits from sales fluctuations.