Issuing Debt Provides Incentives for Managers to Run the Firm

question 103

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)shareholders prefer to decline new projects to save cash, even if their NPVs are positive.
• C)ownership may remain more concentrated, improving monitoring of management.
• D)managers may take actions that benefit shareholders but harm creditors and lower the value of the firm.

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Definitions:

Moral Principles

Fundamental beliefs or rules about right and wrong that guide an individual's behavior and decisions.

Larger Society

The broader social context that extends beyond smaller social units, encompassing larger groups and cultural norms.

Ultimate Consumers

The end-users who purchase and use products or services for personal, non-commercial purposes.

Household

A person or group of people living together in a single living accommodation, sharing meals or living space, and may consist of a family or other socially cohesive unit.