Which of the Following Statements Is an Example of an Agency

question 99

Multiple Choice

Which of the following statements is an example of an agency cost of debt?

• A) ABC Co. shareholders pressure management to invest in very risky projects in hopes that one of the investments might pay off. The company is highly leveraged, so shareholders have little to lose.
• B) ABC Co. has no debt but very few investment opportunities. The board of directors decides not to pay out a large special dividend. Lenders collect 100 percent of the face value of the debt.
• C) ABC Co. is financially sound. The company has a negative-NPV investment opportunity. Investors refuse to invest the additional funds necessary to pursue the project, as it has negative NPV.
• D) Investors are unsure of the value for ABC Co. ABC Co. decides to issue equity to pay down debt. The market assumes that ABC Co.'s managers are issuing equity because they think that the company's stock is overvalued. As a result, the company's stock price falls when the equity issue is announced.

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Definitions:

Social Policies

Policies designed to address social issues and promote social welfare, often involving governmental intervention to provide services and support in areas like healthcare, education, and housing.

Politically Powerful

Describes individuals or groups that have significant influence over political decisions and policy-making processes.

Government's Social Policies

Strategies and measures developed by a government to address social issues like health, education, housing, and welfare.

Poverty

A state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living.