More Debt in the Capital Structure Provides Managers with an Incentive

question 2

True/False

More debt in the capital structure provides managers with an incentive to maximise cash flows, but also makes them want to take on negative NPV projects.

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Definitions:

Economic Losses

Financial losses that occur when the cost of production exceeds the revenue generated from sales.

Total Output

The total quantity of goods or services produced by a firm or economy in a given period.

Fixed Amount

A specific, unchanging quantity or sum, often used in financial contexts to denote a constant payment or investment.

Accounting Profits

The profit or loss recorded on a company's financial statements, calculated as revenues minus expenses and taxes.