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:

Need For Achievement

The drive or motivation to accomplish tasks and meet high standards of performance.

Situational Factors

External conditions or circumstances that can influence an individual's behavior and decision-making process.

Achievement Strivings

Efforts to accomplish success, mastery, or high standards in one’s personal and professional life.

Materialistic Goals

Aspirations or objectives that focus on acquiring material possessions and wealth.