The Presence of a Large Amount of Debt Can Encourage

question 112

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.
• E)this will increase profits.

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Definitions:

Investing Wisely

The process of allocating resources, often financial, in a manner that maximizes the potential for gain while minimizing risk.

Executive Summary

A concise document summarizing the most important information in a business plan, report, or proposal.

Business Fundamentals

Basic principles and considerations that are essential for the successful operation and growth of a business.

Successful Business Plan

A detailed document that outlines the strategy, objectives, market analysis, financial forecasts, and operational plans for a business to succeed.