When Faced with Financial Distress, Managers of Firms Acting on Behalf

question 34

Multiple Choice

When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to

• A)issue large quantities of low-quality debt versus low quantities of high-quality debt.
• B)favor paying high dividends to shareholders.
• C)delay the onset of bankruptcy as long as they can.
• D)issue large quantities of low-quality debt versus low quantities of high-quality debt, favor paying high dividends to shareholders, and delay the onset of bankruptcy as long as they can.

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Definitions:

Inventories

Goods and materials that a business holds for the purpose of resale or production.

Manufacturers

Manufacturers are entities engaged in the transformation of raw materials or components into finished goods that are sold to consumers, businesses, or other manufacturers.

Product Costs

The total expenses incurred to produce a product including direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to the production process and are instead charged to the periods in which they are incurred, such as sales and administration expenses.