If a Firm Borrows a Large Sum of Money, It

question 12

Multiple Choice

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

• A) risk taking.
• B) adverse selection.
• C) poor decision making.
• D) Ricardian equivalency.
• E) moral hazard.

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Definitions:

MORAL Model

A decision-making framework often used in healthcare to navigate ethical dilemmas by outlining a series of steps to arrive at a moral decision.

Abortion

The medical or surgical termination of a pregnancy before the fetus can survive outside the uterus.

Ethical Duty

The obligation to adhere to moral principles and standards in decision-making and actions.

Ethical Dilemma

A situation in which a person must choose between two or more morally correct but mutually exclusive actions.