When Shareholders Pursue Strategies Such as Taking Excessive Risks or Paying

question 4

Multiple Choice

When shareholders pursue strategies such as taking excessive risks or paying excessive dividends, these will result in

• A)no action by debtholders since these are equityholder concerns.
• B)positive agency costs, as bondholders act on various restrictions and covenants, which will diminish firm value.
• C)investments of the same risk class that the firm is in.
• D)no action by debtholders since these are equityholder concerns and investments of the same risk class that the firm is in.

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Definitions:

Pressure Receptors

Sensory nerve endings that respond to changes in pressure, especially those in the cardiovascular system that help regulate blood pressure.

Smell Receptors

Specialized nerve cells located in the nose that detect chemical molecules in the air and transmit signals to the brain, resulting in the perception of odors.

Chemoreceptors

Sensory receptors that respond to chemical stimuli, found in various locations in the body, crucial for detecting changes in chemical composition.

Thermoreceptors

Specialized nerve cells that are able to detect changes in temperature, sending signals to the brain about the body’s external and internal temperature.