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:

Limestone

A type of sedimentary rock, primarily composed of calcium carbonate, often formed from the remains of marine organisms.

Shale

A fine-grained sedimentary rock formed from clay and silt-sized particles, often easily split into thin, parallel layers.

Impermeable Layers

Geological strata that do not allow the passage of water or fluids due to their tightly packed nature.

Permeable Rocks

Rocks that contain pores or cracks through which fluids such as water can easily pass.