You Are Evaluating a Company and Have Found a New

question 68

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:

Pioneer Species

Species that can colonize a new habitat.

Keystone Species

A species that has a disproportionately large effect on community structure relative to its abundance.

Evolved

The process through which species undergo changes over time, often through genetic variation and natural selection, leading to adaptations and diversity among organisms.

Competitive Exclusion

A principle stating that two species competing for the same resources cannot stably coexist if other ecological factors are constant; one will always outcompete the other.