If a Firm Has Debt Outstanding the Contingent Claim of an Equity

question 23

Multiple Choice

If a firm has debt outstanding the contingent claim of an equity shareholder is:

• A) equal to the payment to the debtholders
• B) equal to the firm cash flows minus the fixed debt payment if the residual cash flows are positive
• C) equal to the firm cash flows minus the fixed debt payment whether positive or negative
• D) equal to the debt payment plus the residual cash flow of the firm.

Recognize the difference between void and voidable contracts.

Grasp the implications of mutual mistake and its effect on contract validity.

Understand the role of independent legal advice in preventing undue influence claims.

Comprehend the legal consequences of entering into a contract under duress.

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Definitions:

Taxes

Compulsory contributions to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.

Economic Efficiency

A situation where resources are utilized in such a manner that maximizes the satisfaction of needs and wants with minimal waste or inefficiency.

Public Good

A public good is a commodity or service that is made available to all members of a society, typically free of charge, funded by taxes, and characterized by non-excludability and non-rivalry.

Information Problems

Challenges encountered due to the lack of complete or accurate information, leading to suboptimal decisions and market failures.