When Shareholders Pursue Selfish Strategies Such as Taking Large Risks

question 10

Multiple Choice

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

• A) no action by debtholders since these are equity holder concerns.
• B) positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.
• C) investments of the same risk class that the firm is in.
• D) undertaking scale enhancing projects.
• E) lower agency costs, as shareholders have more control over the firm's assets.

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Definitions:

Protein Pumps

Integral membrane proteins that actively transport ions or molecules across cellular membranes, often against their concentration gradient, using energy.

Macrophages

Large phagocytic cells that can ingest and digest pathogens, cellular debris, and foreign substances, important in the immune response.

Phagocytosis

Process by which cells engulf large substances, forming an intracellular vacuole.

Bloodstream

The flowing body fluid that circulates throughout the body via the heart and blood vessels, carrying oxygen and nutrients to tissues and removing waste.