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:

African Americans

A term referring to citizens or residents of the United States who have full or partial ancestry from any of the black racial groups of Africa.

European Americans

Individuals in the United States who are of European descent, forming a significant demographic group within the country's population.

Schizotypal Personality Disorder

A psychological ailment marked by intense fear in social situations, disturbed thoughts, paranoid thoughts, experiences of unreality, brief periods of psychosis, and commonly unusual beliefs.

Paranoid Personality Disorder

A mental health disorder characterized by long-standing suspiciousness and mistrust of people, but without a full-blown psychotic disorder like schizophrenia.