Debt Can Reduce Agency Costs Between Shareholders and Management,but

question 76

Multiple Choice

Debt can reduce agency costs between shareholders and management,but

• A)only if the firm is totally up to its eyeballs in debt.
• B)only to the extent that the firm can commit all of its free cash flow.
• C)excessive debt can create its own agency conflicts.
• D)debt is best used as a corporate governance mechanism by young companies with limited cash reserves.

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Definitions:

Inventory Costs

Expenses associated with storing and managing goods that a company holds in stock.

Peak Seasons

Periods of the year when demand for a product or service is significantly higher than usual.

Off Season

A period of time during which there is less demand for certain goods or services, often due to seasonal factors.

Predictable Variability

The expected or forecasted fluctuation in demand, supply, or other business variables that can be anticipated and planned for.