Issuing Debt Provides Incentives for Managers to Run the Firm

question 24

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.
• E)managers will be obligated to run the firm in the interests of bondholders.

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Definitions:

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