An Over-Investment Problem Means That Shareholders Have an Incentive to Invest

question 54

Multiple Choice

An over-investment problem means that shareholders have an incentive to invest in risky ________ projects.

• A) positive-NPV
• B) negative-NPV
• C) zero-NPV
• D) none of the above

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Definitions:

Promissory Note

A written, legally binding agreement in which one party promises to pay a defined sum of money to another party under specific conditions.

Article 3

Often refers to a section of a constitutive document of an organization, treaty, or a part of a legal code detailing specific provisions related to governance, legal processes, or rights.

Certificates of Deposit

Fixed-term financial instruments issued by banks that offer a fixed interest rate in exchange for keeping the deposit untouched for a predetermined period.

Orders to Pay

Instructions typically issued by a debtor authorizing their bank to pay a specified amount of money to a creditor on a certain date.