When a Stockholder's Stake Is Worthless the Firm Runs the Risk

question 75

Multiple Choice

When a stockholder's stake is worthless the firm runs the risk of:

• A)underinvestment because there isn't much capital for investment.
• B)overinvestment because there isn't much wealth at risk.
• C)having bondholders invoke the separation principle to obtain first rights on the firm's assets.
• D)none of these.

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Definitions:

Stereotype

A generalized (sometimes accurate but often overgeneralized) belief about a group of people.

Latin-American

Pertaining to cultures and peoples of countries in the Americas where Romance languages, primarily Spanish and Portuguese, are spoken.

Impractical

Not sensible or realistic in application; not feasible in practice.

Discrimination

Unfair or prejudicial treatment of individuals or groups based on characteristics such as race, gender, age, or sexual orientation.