When a Firm's Investment Decisions Have Different Consequences for the Value

question 45

Multiple Choice

When a firm's investment decisions have different consequences for the value of equity and the value of debt, managers may take actions ________.

• A) to increase debt values
• B) to decrease costs of distress
• C) that benefit shareholders at the expense of debt holders
• D) to reduce fixed costs

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Definitions:

Cash Balance

The amount of cash or cash equivalents a company or individual possesses at any given time.

Disbursements

The act of paying out or distributing money, often by a business for various expenses.

Equipment Account

An account that tracks the cost of equipment a company owns, minus any accumulated depreciation.

Liability Account

An account that records obligations or amounts owed to others that will require a future outflow of resources.