Issuing Debt Provides Incentives for Managers to Run the Firm

question 90

Multiple Choice

Issuing debt provides incentives for managers to run the firm efficiently because:

• A)Debt increases the funds available to managers to run the firm.
• B)Ownership may remain more concentrated,improving monitoring of management.
• C)Managers may take actions that benefit shareholders but harm creditors and lower the value of the firm.
• D)Shareholders prefer to decline new projects to save cash,even if their NPVs are positive.

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Definitions:

Control Limits

The parameters within which a process or monitoring variable is considered acceptable, helping to identify deviations from expected performance.

Deming Approach

A management philosophy focused on quality improvement and reduction of variability through statistical methods, named after W. Edwards Deming.

Philosophy

The study of fundamental questions related to existence, knowledge, values, reason, mind, and language.

Entirety

The whole of something, complete and total without exclusion of any part.