A Type of Agency Problem That Results in Shareholders Gaining

question 109

Multiple Choice

A type of agency problem that results in shareholders gaining from decisions that increase the risk of the firm sufficiently,even if they have negative NPV is:

• A)asset substitution.
• B)debt overhang.
• C)underinvestment.
• D)cashing out.

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Definitions:

Vertical Merger

A business consolidation that occurs between companies that operate within the same supply chain, typically involving a manufacturer merging with a supplier or a distributor.

Conglomerate Company

A conglomerate company is a large corporation composed of diverse companies operating in various industries or sectors, typically under one corporate group.

Home-Based Businesses

Firm operated from the residence of the business owner.

Business Hours

The specific times during which a business is open to its customers or clients, typically defined by each company.