The Presence of a Large Amount of Debt Can Encourage

question 9

Multiple Choice

The presence of a large amount of debt can encourage shareholders to take excessive risk because ________.

• A) equity holders are risk seeking by nature
• B) the costs of failure are borne largely by debt holders
• C) debt holders are risk seeking
• D) firm value increases with risk taking

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Definitions:

Resistors

Electronic components that oppose the flow of electrical current, used to control the level of current in a circuit.

Manipulation and Co-optation

Techniques used in organizational change, manipulation involves covert influence, while co-optation involves bringing individuals into a change effort to secure their support.

Planned Change

A deliberate effort to improve a system, process, or outcome through structured methods and strategies.

Self-Renewal

The ability of individuals or organizations to adapt, evolve, and innovate continuously, fostering long-term sustainability and resilience.