You Are Evaluating a Company and Have Found a New

question 48

Multiple Choice

You are evaluating a company and have found a new way to calculate the present value of bankruptcy costs,agency costs of outside equity as well as debt.You find that the agency costs of outside equity is $100 while the agency cost of outside debt is $1,000,000.The costs of bankruptcy are also $1,000,000.What type of firm does most likely describe?

• A) a firm with too little leverage
• B) a firm with too much leverage
• C) a firm with too much equity
• D) a firm that should disregard its agency costs

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Definitions:

Community Remarriage

The cultural or societal practices and norms surrounding the re-marriage of individuals within a community, which can influence attitudes towards and acceptance of remarried couples.

Valuable Friendships

Deep and meaningful relationships that significantly contribute to one's well-being and life satisfaction.

Role Expectations

Social norms specifying the responsibilities and behaviors expected of individuals in certain positions.

Fragile

Easily broken or damaged; delicate and not strong.