When Shareholders Pursue Selfish Strategies Such as Taking Large Risks

question 10

Multiple Choice

When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends,these will result in:

• A) no action by debtholders since these are equity holder concerns.
• B) positive agency costs, as bondholders impose various restrictions and covenants which will diminish firm value.
• C) investments of the same risk class that the firm is in.
• D) undertaking scale enhancing projects.
• E) lower agency costs, as shareholders have more control over the firm's assets.

---

Definitions:

Iconic Memory

Visual sensory memory, lasting only a fraction of a second.

Echoic Memory

Auditory sensory memory, lasting only 2 to 4 seconds.

Capacity

The maximum amount that something can contain or produce, or the ability to perform, understand, or absorb something.

Sensory Memory

The shortest-term element of memory, which allows individuals to retain impressions of sensory information after the original stimulus has ceased.